Insurance expenses recorded in the books are £2,800 and there is a prepayment of £500. Therefore:
£2,800 will be shown in the profit and loss account
£2,300 will be shown in the profit and loss account
£500 will be shown in profit and loss account
a prepayment of £2,800 will be shown under current assets in the balance sheet.
Electricity expenses recorded in the books are £1,200 and there is an accrual of £300. Therefore:
£1,200 will be shown in the profit and loss account
£900 will be shown in the profit and loss account
£300 will be shown in the profit and loss account
an accrual of £300 will be shown under current liabilities in the balance sheet.
A fixed asset cost £50,000, has a residual value of £2,000 and a life of 12 years. Using the straight-line method of depreciation, after 4 years the net book value (NBV) is:
£16,000
£42,000
£34,000
£33,330
A fixed asset cost £40,000 and is depreciated at 25% using the reducing balance method. After 2 years its NBV is:
£10,000
£12,500
£20,000
£22,500
A bad debt is created when:
a debt is outstanding for more than one year
a debtor becomes insolvent
a creditor becomes insolvent
it is not known whether the debt will be paid
An increase in the provision for doubtful debts will result in
an increase in expenses in the profit and loss account
a decrease in expenses in the profit and loss account