Answer Happy

QUESTION 2: Andrea Ltd ("Andrea") is a company with a financial year-end at 30 April 2019. Andrea's interest on long term loans for the previous 12 months is paid annually on 31 July. For the twelve months to 31 July 2018, the interest on Andrea's long-term loan paid on 31 July 2018 was £12,000. For the twelve months to 31 July 2019, the interest payment to be paid on 31 July 2019 is expected to be £16,000. REQUIRED: a) Show calculations for the interest prepayment or accrual as appropriate, and the interest expense. (5 marks) b) Prepare T accounts, so far as you are able, for each of: 1) cash, 2) interest prepayment or accrual as appropriate, and 3) interest expense. (4 marks) c) Define and explain the accounting principle underlying your accounting entries in Part b). (4 marks) d) Explain how accruals and prepayments arise. (7 marks) e) Holly Limited had made a prepayment in respect of insurance as at 31 March 2018 of £600. During the year ended 31 March 2019 payments for insurance of £4,000 were made. This amount included £1,000 in respect of the year to 31 March 2020. Calculate the figure to be included in the statement of profit or loss for the year to 31 March 2019 in respect of insurance. (5 marks) (Total: 25 marks)