ICANFinancial AccountingAccruals, Prepayments and Provisions2025

Kelechi & Sons Ltd received an electricity bill of ₦75,000 on 5 January 2024 in respect of consumption for the quarter ended 31 December 2023. The company's year-end is 31 December 2023. Under IAS 37 and the accruals concept, how should this amount be treated in the financial statements for the year ended 31 December 2023?

ARecognised as an expense and a prepayment of ₦75,000 in 2023
BRecognised as an expense and an accrued liability of ₦75,000 in 2023CORRECT
CRecognised entirely as an expense in January 2024 when the bill was received
DDisclosed as a contingent liability in the notes to the 2023 financial statements
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Why the answer is B, and why the others tempt you.
The accruals concept (also reinforced by IAS 1 and IAS 37) requires that expenses be recognised in the period in which they are incurred, not when billed or paid. Since the electricity was consumed during the year ended 31 December 2023, ₦75,000 must be recognised as an expense and an accrued liability (creditor) in the 2023 financial statements. It is not a contingent liability because the obligation is certain.
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