Question

Which of the following statements related to the balance sheet account ‘Prepaid Insurance’ are correct? Select as many as you think are true.

Select one or more:

Current tax liability will be higher if more insurance is paid in advance than expensed during the year.

1.Balance day adjustments recognise the amount of prepaid insurance paid during the period.

2.Represents a tax asset in the future.

3.If no insurance is paid in a period, there is no tax deduction.

4.Represents a tax liability in the future.

5.As prepaid insurance is consumed throughout a period (assuming no more is paid in advance), the deferred tax liability is reduced.

6.Current tax liability will be lower if more insurance is paid in advance than expensed during the year.

7.Balance day adjustments recognise the amount of prepaid insurance consumed during the period, which becomes an expense.

8.As prepaid insurance is consumed throughout a period (assuming no more is paid in advance), the deferred tax liability is increased.

9.Tax deductions are based on insurance expense incurred during the period.

Answer 1

Correct Statements are:

1.Balance day adjustments recognise the amount of prepaid insurance paid during the period.

7.Balance day adjustments recognise the amount of prepaid insurance consumed during the period, which becomes an expense.

9.Tax deductions are based on insurance expense incurred during the period.