How to calculate expired and unexpired prepaid insurance at the end of a year?

Answer 1

In case of some expense u might have seen advance payment is done. So as to comply with the terms of agreement or it can be

for any other reason too.

And this advance is shown in the asset side of balance sheet.

Now,in case of insurance the same thing is happening.

For example:- a ltd. F.y begins from 1-4-10 to 31-3-11. A ltd. Purchases a fixed asset on 1-2-11. Now a ltd. Wants to get this fixed asset insured and minimum insurance period as per the insurance policy is 1 year. So here the insurance period will

begin from 1-2-11 to 28-2-12.

As per accrual basis of accounting expenses which pretain to a particular year are are to be shown in the p/l of that year. And rest are shown as prepaid expense (in case of insurance termed as , unexpired insurance)

now coming back to a ltd. Let us suppose that payment made is = rs. 12000.

Calculation of expired and unexpired expense.

Total insurance expense paid = 12000

insurance expense of single = 12000/12

month

expired insurance = 1000*2 (for the month of feb and march 2011)

and rest of the amount is unexpired insurance because the period to which it pertains is of next f.y. Hence in the b/s of 10-11 insurance amount of rs 10000 will be shown as unexpired insurance.

And yes one thing more. There is no such term as unexpired prepaid insurance. Either u call it prepaid insurance or unexpired insurance.

Hope i solved ur query.