ICANFinancial AccountingAccruals, Prepayments and Provisions2023

Okonkwo & Partners prepares accounts to 31 March each year. The following information relates to its rates (local government levy) account: Rates paid on 1 October 2022 for the six months to 31 March 2023: ₦180,000; Rates paid on 1 October 2023 for the six months to 31 March 2024: ₦216,000. What is the rates expense in the statement of profit or loss for the year ended 31 March 2023, and the prepayment (if any) in the statement of financial position as at that date?

AExpense ₦180,000; Prepayment ₦NilCORRECT
BExpense ₦198,000; Prepayment ₦108,000
CExpense ₦216,000; Prepayment ₦Nil
DExpense ₦180,000; Prepayment ₦108,000
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Why the answer is A, and why the others tempt you.
The rates paid on 1 October 2022 (₦180,000) cover exactly the six months to 31 March 2023, which is the company's year-end. Therefore, the entire ₦180,000 is an expense for the year ended 31 March 2023 with no unexpired portion remaining at year-end, hence no prepayment. The second payment of ₦216,000 is made on 1 October 2023, which falls in the following financial year (April 2023 – March 2024) and does not affect the year ended 31 March 2023.
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