Page 398 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx

Chapter 20

Example 4

Commencing 1 July 20X5, a business entity rented out a property to a tenant
at $5,000 per month. During the year ended 30 June 20X6, it received $64,000
cash from the tenant.

Required:

What was the rental income receivable for the year ended 30 June 20X6,
and the liability for prepaid income received in the statement of financial
position at 30 June 20X6?

Example 4: Solution

The total amount credited to the statement of profit or loss for the year ended
30 June 20X6 should be $60,000 (i.e. 12 × $5,000).

The cash received during the year ended 30 June 20X6 was $64,000.

Therefore, prepaid income to include within current liabilities in the statement
of financial position at 30 June 20X6 was $4,000 (i.e. $64,000 received –
$60,000 earned).

392