A sole trader pays Rs. 24,000 for a twelve-month advertising contract beginning on 1 October. If the accounting year ends on 31 December, what expense belongs to that year?
Correct answer: A. Rs. 6,000
- A. Rs. 6,000
- B. Rs. 8,000
- C. Rs. 18,000
- D. Rs. 24,000
Explanation
Three months of the contract fall within the year, from October through December. The current year's expense is therefore Rs. 24,000 multiplied by 3/12, or Rs. 6,000.
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About Financial Statements of Sole Traders
Sole trader statements calculate revenue, cost of sales, gross profit, operating expenses and net profit, then present assets, liabilities and owner’s capital in the statement of financial position. Adjustments for closing inventory, accruals, prepayments, depreciation, bad debts, drawings and additional capital connect the two statements.
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