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Thread: Financial Accounting help!!

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    Question Financial Accounting help!!

    I am busy revising for an exam in Introduction To Financial Accounting which I have tomorrow night! I managed to fluke the last test by only getting one question wrong but I can't rely on luck for this one!!

    I have come across a problem! I'm not sure how the lecturer has come to the answer given. He is not around at the moment and neither is the tutor so I'm wondering if any of you nice hexus users can help!!

    The question is:

    Neil commenced business 1st May 2000 and is charged rent at a rate of £6,000 per annum. During the period to 31st December 2000, he actually paid £4,600. What should his charge in the profits and loss account be in respect of rent?

    The answer given is:

    £4,000

    Can anyone explain why this is so?

    Many thanks
    Who said big is best?

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    Pixel Abuser Spunkey's Avatar
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    *disclaimer* i'm not an accountant so this could be completely wrong but..

    looking at it mathematically...
    6K / 12 months = £500/mo

    Asuming he paid the first month up front, May to Dec = 8 months payments = £4000??

    hope its some help at least

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    Quote Originally Posted by rubbishrubbishrubbishrubbishrubbishey
    *disclaimer* i'm not an accountant so this could be completely wrong but..

    looking at it mathematically...
    6K / 12 months = £500/mo

    Asuming he paid the first month up front, May to Dec = 8 months payments = £4000??

    hope its some help at least
    Cheers!

    That makes a lot more sense than the lectuerer does when he's around.

    Thank you muchly!
    Who said big is best?

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    The Jelly made me do it! Honoop's Avatar
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    Yup rubbishrubbishrubbishrubbishrubbishey is right but the other way to look at it is that the company was formed on 1st May 2000 and ur filing accounts to the year end 31st December which is 8 months.

    £6000 divided by 12 multiplied by 8 - £4000!!

    And Im Part Qualified ACCA so if you have any more probs just PM me and I'll see if I can help!!
    If you're not living on the edge, you take up too much room

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    Quote Originally Posted by Honoop
    Yup rubbishrubbishrubbishrubbishrubbishey is right but the other way to look at it is that the company was formed on 1st May 2000 and ur filing accounts to the year end 31st December which is 8 months.

    £6000 divided by 12 multiplied by 8 - £4000!!

    And Im Part Qualified ACCA so if you have any more probs just PM me and I'll see if I can help!!
    Thanks so much!! I may be sending you quite a few problems!!!!! shame you couldn't have put on a blonde wig and pretended to be me for the exam I had on friday night!!!! It was sooo hard but luckily everyone else thought the same!

    Thank you again!!!
    Who said big is best?

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    HEXUS.social member Allen's Avatar
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    Quote Originally Posted by Honoop
    And Im Part Qualified ACCA so if you have any more probs just PM me and I'll see if I can help!!
    Kewl, I may be doing ACCA after I complete AAT (if I can find a new company to fund me that is, it's a bit expensive to complete it on my own!!).

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    The Jelly made me do it! Honoop's Avatar
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    Quote Originally Posted by little me
    Thanks so much!! I may be sending you quite a few problems!!!!! shame you couldn't have put on a blonde wig and pretended to be me for the exam I had on friday night!!!! It was sooo hard but luckily everyone else thought the same!
    No worries. At least everyone thought it was hard, could be a good sign!
    Ps. No need for the blonde wig tbh...

    Quote Originally Posted by Allen
    Kewl, I may be doing ACCA after I complete AAT (if I can find a new company to fund me that is, it's a bit expensive to complete it on my own!!).
    Dont know how anyone could do ACCA or CIMA unfunded, costs a fortune! I do 2 exams at a time and course fees alone come close to £1000 every 6 mths.
    Most good companies will fund ur studies these days, its worth their while just as much as urs. Good Luck with ur AAT.
    If you're not living on the edge, you take up too much room

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    It seems to me that the answers given are correct, if perhaps incomplete. It sounds a bit like the question is getting at the distinction between the charge for the year and the amount actually paid - i.e. accruals and prepayments.

    Unless there's more to the question that you've given, then it seems like the money paid (£4600) consists of £4000 (8 months, May to Dec inclusive, at £500/month, as others have said) plus a prepayment of £600. And if it is a prepayment (rent in advance) then it's actually a charge against next year's profits, not this years.

    On the other hand, you might expect a prepayment to be £500 (one month), not £600, so why £600? Maybe it's a deposit required at the start of the rental. In which case, it isn't a profit and loss item at all, but rather a balance sheet item, since it's refundable. It's a bit like a loan - an asset.


    Or ..... am I simply reading to much into this?

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    The Jelly made me do it! Honoop's Avatar
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    Quote Originally Posted by Saracen
    It seems to me that the answers given are correct, if perhaps incomplete. It sounds a bit like the question is getting at the distinction between the charge for the year and the amount actually paid - i.e. accruals and prepayments.

    Unless there's more to the question that you've given, then it seems like the money paid (£4600) consists of £4000 (8 months, May to Dec inclusive, at £500/month, as others have said) plus a prepayment of £600. And if it is a prepayment (rent in advance) then it's actually a charge against next year's profits, not this years.

    On the other hand, you might expect a prepayment to be £500 (one month), not £600, so why £600? Maybe it's a deposit required at the start of the rental. In which case, it isn't a profit and loss item at all, but rather a balance sheet item, since it's refundable. It's a bit like a loan - an asset.


    Or ..... am I simply reading to much into this?
    LOL!!

    Dont go throwing confusion into this now!!

    Of course the extra £100 could also be because of a rise in the annual amount of rent payable!
    If you're not living on the edge, you take up too much room

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    Quote Originally Posted by Saracen
    It seems to me that the answers given are correct, if perhaps incomplete. It sounds a bit like the question is getting at the distinction between the charge for the year and the amount actually paid - i.e. accruals and prepayments.

    Unless there's more to the question that you've given, then it seems like the money paid (£4600) consists of £4000 (8 months, May to Dec inclusive, at £500/month, as others have said) plus a prepayment of £600. And if it is a prepayment (rent in advance) then it's actually a charge against next year's profits, not this years.

    On the other hand, you might expect a prepayment to be £500 (one month), not £600, so why £600? Maybe it's a deposit required at the start of the rental. In which case, it isn't a profit and loss item at all, but rather a balance sheet item, since it's refundable. It's a bit like a loan - an asset.


    Or ..... am I simply reading to much into this?
    I gave the whole question so am hoping that you are reading into it too much otherwise I'm confused!! I recognise all the terminology you have used but I can't get my head round it!!! I'll stick with the original answers as they make sense to me but thank you very much anyway!!!
    Who said big is best?

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    I had my exam on friday but most of it was on bad debts and provisions etc which we had only been introduced to the day before by a lecturer who didnt really have much of a clue! Oh well it was multiple choice again so hopefully had some lucky guesses like last time!
    Who said big is best?

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    2nd hardest inthe infants petrefax's Avatar
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    my sister is doing her final year AAT at the moment, and i sit opposite 3 financial accountants at work (all of which owe me big time cos i fix their PCs whenever they break them, which is quite often) so if i can help by proxy i'll ask them & post their answers
    if it ain't broke...fix it till it is


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