Question

Trial Balance of accounting year 2019-2020 (i.e. from 01-04-2019 to 31-02
2020), It shows insurance amounting to Rs.6000 which includes a premium
of Rs.3600 for a year ended on 30th June, 2020. What amount of insurance
will be shown on debit side of Profit & Loss A/c for the year 2019-20?
ORs.6000
ORs.5100
ORs.3600
ORs.2700
​

Answer 1

Answer: a

Explanation:

Answer 2

The amount of insurance that will be shown on the debit side of the profit and loss account is "₹5,100".

• When making adjustments, If an amount is paid in advance, then the advance amount is deducted from the total amount paid and is posted in the profit and loss account. But if the amount is outstanding, it is added to the amount paid and then posted to the profit and loss account.
• Here the year ends on 31-03-2020 but the insurance premium is paid up to 30-06-2020 this means that 3 months premium is paid in advance, it will be deducted before posting to the profit and loss account.
• 3 months pre-paid insurance premium = total insurance premium * 3/12 = 3,600 * 3/12 = ₹900
• Amount of insurance shown on the debit side of profit and loss account = total insurance amount - 3 months pre-paid insurance premium                                                                                             = 6,000 - 900 = ₹5,100