Question 5 of 35intermediate🔧 ApplyMCQ1 mark

If the insurance premium paid ₹ 1,000 and pre-paid insurance ₹ 300. The amount of insurance premium shown in profit and loss account will be:

Exercise: Test Your Understanding | Q: 5 | (Page 22)
For More Understanding

Explanation

Option D is correct because prepaid insurance represents the portion of the premium paid in advance for the next accounting year. As illustrated in the provided context, the expense shown in the profit and loss account is calculated by deducting the prepaid amount from the total premium paid (e.g., ₹ 1,200 - ₹ 300 = ₹ 900). Applying this same logic to the question: ₹ 1,000 (Paid) - ₹ 300 (Prepaid) = ₹ 700.

Solution Steps

  1. Insurance Premium Paid: ₹ 1,000

  2. Less: Prepaid Insurance: ₹ 300

  3. Insurance Premium shown in Profit and Loss Account: ₹ 1,000 - ₹ 300 = ₹ 700

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