Question
Protea Investments, whose financial year ends on 28 February, owns a shopping complex which is rented to suitable tenants. Protea Investments requires that upon entering
Protea Investments, whose financial year ends on 28 February, owns a shopping complex which is rented to suitable tenants. Protea Investments requires that upon entering into a new lease agreement, the tenant needs to pay rent upfront for 12 months. Oasis enters into an agreement with Protea Investments from 01 February 2020 and pays R36 000 on that date. Protea Investments accountant records the following entry: 2020 Feb 01 Dr. Bank R 36 000 Cr. Rental income R 36 000 Rental received from Oasis
You are required to answer the following:
a) Which amount should appear in Protea Investments Statement of Profit or Loss for the period ended 28 February 2020 and how will this be reflected? (2 marks)
b) With reference to your answer in (a), where and how should the remaining portion of the amount appear in Protea Investments financial statements? (2 marks)
c) Which adjusting entry should be made on 28 February 2020 in order to implement your answer? (2 marks)
d) Assume that the entry was recorded as follows: 2020 Feb 01 Dr. Bank R 36 000 Cr. Rental received in advance R 36 000
e) How will the answer in (a), (b) and (c) differ? (4 marks)
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