A business paid rent of KSh 120,000 for the year ended 31 December. Of this amount, 3 months relate to the next year. What rent expense is charged to this year's income statement?
Answer and explanation
Correct answer: D. KSh 90,000
- Step 1: Monthly rent = 120,000 / 12 = 10,000. Step 2. Prepayment = 3 x 10,000 = 30,000. Step 3. Rent expense = 120,000 - 30,000 = 90,000. Answer: KSh 90,000. Why not the others: KSh 120,000: That charges the whole payment, including the prepaid part. KSh 30,000: That is the prepayment, which belongs to next year. KSh 150,000: That adds the prepayment instead of removing it.
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