Use the following information to answer this question Rent for 2014 chargeable to the profit and loss account is

This question tests the accrual (matching) principle: the profit and loss account must reflect the rent expense that belongs to the accounting period, not merely the cash paid during that period. Two adjustments are needed when prepaid rent exists at both the start and end of the year.

Rent prepaid at the start of the year (1 January 2014) is an amount that was paid in the previous year but relates to 2014. Because it covers part of 2014, it must be added to the rent paid during 2014 to capture the full expense for the period.

Rent prepaid at the end of the year (31 December 2014) is an amount paid during 2014 but relates to 2015. Because it does not belong to 2014, it must be subtracted from the total.

Applying the formula:

\[ \text{Rent chargeable to P\&L} = \text{Rent paid} + \text{Opening prepaid} - \text{Closing prepaid} \]

\[ = \text{₦}3{,}200 + \text{₦}600 - \text{₦}400 = \text{₦}3{,}400 \]

The rent chargeable to the profit and loss account for 2014 is therefore \(\text{₦}3{,}400\).

A common mistake is to reverse the adjustments, subtracting the opening prepaid and adding the closing prepaid, which would give \(\text{₦}3{,}200 - \text{₦}600 + \text{₦}400 = \text{₦}3{,}000\). Another error is to ignore the opening prepaid entirely and subtract only the closing prepaid, yielding \(\text{₦}3{,}200 - \text{₦}400 = \text{₦}2{,}800\). Both results understate the true expense for the year.

When adjusting for prepayments, remember: opening prepaid is a benefit consumed this year (add it), while closing prepaid is a benefit to be consumed next year (subtract it).