Question 1

Mr. Chai sells various types of toys throughout Malaysia. Three of the accounts in the ledger of Mr. Chai indicated the following;

Balances at 1 January 2020:

(i) Insurance paid in advance RM562

(ii) Wages outstanding RM306

(iii) Rent receivable, received in advance RM36

During 2020, Mr. Chai:

(i) Paid for insurance RM1,019, by bank standing order

(ii) Paid RM15,000 wages, in cash

(iii) Received RM2,600 rent, by cheque, from the tenant

At 31 December 2020:

(i) Insurance prepaid was RM345

(ii) Wages accrued amounted to RM419

(iii) Rent receivable in arrears was RM105

Required;

(a) Prepare the prepaid insurance, accrued wages and rent receivable accounts for the year ended 31 December 2020.

(12 marks)

(b) Prepare the income statement extract showing clearly the amounts of insurance expense, wages expense and rent revenue for the year ended 31 December 2020.

(4 marks)

(c) Explain the effects on the financial statements of accounting for:

(i) the expenses accrued at year-end

(ii) the income received in advance at year end

(2 marks)

(d) Explain the purposes of accounting for:

(i) the expenses accrued at year end

(ii) the income received in advance at year end

(2 marks)

(Total: 20 marks)