A trader paid insurance premium of N45,000 for 15 months ended 31st March, 2000. He prepares account to 31st December. The amount carried in the Balance she...
A trader paid insurance premium of N45,000 for 15 months ended 31st March, 2000. He prepares account to 31st December. The amount carried in the Balance sheet is classified as
Answer Details
The amount of N45,000 paid by the trader for insurance premium for 15 months ended 31st March, 2000 will have expired for 9 months (January to September) by 31st December. Therefore, the amount of N30,000 (45,000/15 x 9) will be classified as an expense in the Profit and Loss account for the year ended 31st December, while the remaining N15,000 (45,000/15 x 6) will be classified as a current asset in the Balance Sheet. This is because the insurance policy still covers the trader's business for the remaining 6 months (October to March) and can be claimed as an expense in the next accounting year when it expires. Therefore, the correct answer is a current asset.