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      Question

      A company pays insurance premium of ₹24,000 for 12

      months in advance in March 2025 for the period January 2025 to December 2025. The accountant records the entire amount in the Profit & Loss account of FY 2024–25. Is this treatment appropriate?
      A Yes, because the payment is made during the same year Correct Answer Incorrect Answer
      B No, the entire amount should be capitalised Correct Answer Incorrect Answer
      C No, because ₹18,000 should be carried forward as prepaid expense Correct Answer Incorrect Answer
      D Yes, because the matching principle is not applicable Correct Answer Incorrect Answer

      Solution

      Matching principle requires expenses to be recognised in the period they relate to. ₹18,000 is for April–Dec 2025 and should be treated as prepaid.

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