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WAEC Financial Accounting 2015 Question 19

Question 19

Accruals and Prepayments

Extracts from the books of a firm as at June 30, 2012 showed the following balances: Advertising Dr GH¢36,000; Electricity Dr GH¢60,000. Advertising was paid by cheque covering 12 monthly instalments ending March 31, 2012. Electricity was paid by cash covering 15 monthly instalments from March 1, 2011.
Electricity in arrears as at June 30, 2012 amounted to

  1. A.GH¢ 12,000.
  2. B.GH¢ 10,000.
  3. C.GH¢ 8,000.
  4. D.GH¢ 4,000.
Show the answer and explanation

Answer: D (GH¢ 4,000.)

Explanation

Each instalment is 60,000 ÷ 15 = GH¢4,000; 15 months from March 2011 cover up to May 2012, so only June 2012 (GH¢4,000) is in arrears.