During the year ended 30 September 2014, the company recorded the following cash transactions:
1. Payment of an annual insurance premium of $14,040. This covered the period to 31 December 2014.
2. Receipt of $1,638 in respect of rent from tenant covering the three months period to 30 November 2014.
What is the impact on the profit and net assets of making the year end adjustments for the prepaid income and expenditure at 30 September 2014
Suggested solutions:
| Total insurance | 14,040 | No of months | 12 | Monthly insurance | 1,170 | Monthly insurance | 1,170 | No of months paid in advance | 3 | Total prepayment of insurance for the year | 3,510 |
| Total rental collected | 1,638 | No of months | 3 | Monthly rental | 546 | Monthly rental | 546 | No of months paid in advance | 2 | Total prepayment of rental by tenant for the year | 1,092 |
Insurance reduced by $3,510 and rent income reduced by $1,092
Profit and assets should be increased by $2,418.