Simon has been in business for a number of years and has a December year end. He provides you with the following information about his rent, rates and utility bills. Annual rent paid six months in advance on 1st March and 1st September was £1 600 but was increased in September to £1 800. Gas and electricity paid £2300 in year of which £500 related to the last quarter of the previous year before prices went up. Rates which are paid annually in advance were £2400 for the previous rateable year ended 31 March and rose to £2 800 for the current rateable year.
-What should the figure for prepayments be?

Question

Simon has been in business for a number of years and has a December year end. He provides you with the following information about his rent, rates and utility bills. Annual rent paid six months in advance on 1st March and 1st  September  was £1 600 but was increased in September to £1 800.  Gas and electricity paid £2300 in year of which £500 related to the last quarter of the previous year before prices went up. Rates which are paid annually in advance were £2400 for the previous rateable year ended 31 March and rose to £2 800 for the current rateable year. 
-What should the figure for prepayments be?

Quizplus · Accepted Answer

Prepayments are when expenses are paid in advance and need to be accounted for in the current financial year. In this case, the rent paid in September is a prepayment because it is for six months starting in September and ending in February of the following year, which falls into the current financial year. The total rent for this period is £1,800, so half of it (£900) is a prepayment.

Similarly, the rates are paid annually in advance, so the amount paid of £2,400 for the previous rateable year ended 31 March includes a prepayment of £800 for the period from 1 April to 31 May of the current financial year. The difference in rates for the current rateable year of £400 is not a prepayment because it relates to the period from 1 April onwards.

The gas and electricity bill of £2,300 includes £500 related to the last quarter of the previous year, which is not a prepayment because it relates to the period before the current financial year. Therefore, the prepayments for this year are:

Rent prepayment: £900
Rates prepayment: £800
Total prepayments: £1,700

Rounding this up to the nearest £50 gives a figure of £1,750, which is closest to answer choice C. Therefore, the correct answer is C) £1,750.

Simon Has Been in Business for a Number of Years