Data Ltd uses accrual accounting and its financial year ends on 30 June.Expenses paid in advance are treated as assets.On 1 May 2016,Data Ltd pays $480 for a one-year fire insurance policy that expires on 30 April 2017.
-Which of the following will appear on Data Ltd's balance sheet at 30 June 2016?

Question

Quizplus · Accepted Answer

Prepaid insurance of $400 will appear on Data Ltd's balance sheet at 30 June 2016 because the insurance covers a period of 12 months from 1 May 2016 to 30 April 2017, and by 30 June 2016, only 2 months of the policy have been used ($480/12 months = $40 per month; $40 * 2 months = $80 used; $480 - $80 = $400 remaining as prepaid).

Data Ltd Uses Accrual Accounting and Its Financial Year Ends