Adaeze Enterprises prepares accounts to 31 December each year. On 1 April 2023, the company paid an annual insurance premium of ₦480,000 covering the period 1 April 2023 to 31 March 2024. What amount should be recognised as a prepayment in the statement of financial position as at 31 December 2023?

The insurance premium covers 12 months from 1 April 2023 to 31 March 2024. By 31 December 2023, nine months (April–December) have expired, leaving three months (January–March 2024) prepaid. The prepayment is therefore 3/12 × ₦480,000 = ₦120,000. The remaining ₦360,000 is charged to the income statement as an expense for 2023.