A business receives £9,000 in advance for 18 months of subscriptions starting on 1 October. The year ends on 31 December. How much deferred income is shown at the year end?
Answer and explanation
Correct answer: D. £7,500
- Step 1: Monthly income = £9,000 ÷ 18 = £500.
- Step 2: Three months have been earned (October to December): £1,500.
- Step 3: Deferred income = £9,000 − £1,500 = £7,500, shown as a liability.
Answer
£7,500.
Why not the others: £1,500: This is the income earned in the three months to the year end, not the deferred part. £9,000: This treats the whole amount as deferred, though three months of service have been provided. £6,000: This assumes 12 months remain, but 15 of the 18 months remain.
Practise more Intangible assets, accruals and prepayments.
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