A business paid rent of KSh 180,000 for the year ended 31 December. Of this amount, 4 months relate to the next year. What rent expense is charged to this year's income statement?
Answer and explanation
Correct answer: A. KSh 120,000
- Step 1: Monthly rent = 180,000 / 12 = 15,000. Step 2. Prepayment = 4 x 15,000 = 60,000. Step 3. Rent expense = 180,000 - 60,000 = 120,000. Answer: KSh 120,000. Why not the others: KSh 180,000: That charges the whole payment, including the prepaid part. KSh 60,000: That is the prepayment, which belongs to next year. KSh 240,000: That adds the prepayment instead of removing it.
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