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    Question

    A company has prepaid rent for 2 years amounting to ₹6

    lakh. What will be the treatment in financial statements at the end of the first year?
    A ₹6 lakh shown as expense Correct Answer Incorrect Answer
    B ₹3 lakh as current asset, ₹3 lakh as expense Correct Answer Incorrect Answer
    C ₹6 lakh as deferred revenue Correct Answer Incorrect Answer
    D ₹3 lakh charged to P&L, ₹3 lakh shown under prepaid expenses Correct Answer Incorrect Answer
    E ₹6 lakh adjusted against capital reserve Correct Answer Incorrect Answer

    Solution

    As per accrual basis and matching principle, only 1 year’s rent is expensed. Remaining ₹3 lakh is shown as current asset under prepaid expenses.

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