Question

At December 31, 2015, the followings require inclusion in a company’s financial statements: On December 1, 2015 the company made a loan of $12,000 to an employee, repayable on December 1, 2018, charging interest at 2% per year. On the due date, she repaid the loan and paid the whole of the interest due on the loan to that date. The company paid an annual insurance premium of $9,000 in 2015, good for coverage through to July 31, 2016. On January 31, 2016, the company received rent from a tenant of $6,000 covering the six months to January 31, 2016.

A) Given the above information, how much current assets have to be reported in the company’s statement of financial position as at December 31, 2015?

B) Given the above information, how much non-current assets have to be reported in the company’s statement of financial position as at December 31, 2015?

Answer 1

A)

Current assets (Which are expected to be converted into cash within one year)

1. Insurance premium total amount 9000

Since, the insurance premium for 7 months of next year is already paid, it becomes a current asset.

Jan 2016 to July 2016 = 7 months. Therefore, 9000 x (7 / 12) = 5250

2. Rent recieved

Since rent is recieved next year, out of which 5 months are of current year, it comes under rent recievable which is an asset. Therefore we include 5 month's rent amount in current asset.

Therefore, 6000 x (5 / 6) = 5000

3. Interest expense

Interest will be calculated only for a month, as loan is given on Dec 1, 2015, the we are calculating amount till Dec 31, 2015

Therefore, interest amount = 12000 x 2% x (1/12) = 20

Total current assets = 5250 + 5000 + 20 = 10270

B)

Non current assets (Which are not expected to be converted into cash within one year)

Loan amount = 12000

As it will be recieved after 3 years, it comes under non-current asset. Total non current assets is 12000

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