Comments

  1. avatar says

    Dear Sir,

    I have a question about Question 3 at the end of the Chapter 8.

    Could you please explain why we don’t take into account (4) cash received from John of $2,900 which had previously been allowed for, when calculating revised receivables figure?

    And could you please confirm whether my understanding is correct concerning why we don’t take into the account (2) debts of $500 + $1,500 which are to be specially allowed for – it is because receivables figure should include specific allowance.

    Thank you!

    • Profile photo of John Moffat says

      When the questions says that the balance includes the four items, it means that the 2,900 has been entered on the account, which is correct.

      We don’t adjust for the debts in (2) because they are only doubtful – so we leave the amount in receivables, but create the allowance for receivables for them.

  2. avatar says

    Hello John,
    Could you please help me understand the difference between Q1 and Q2 ?
    Q1 – AR is decrease by debt write offs:
    ((1,240,800-88,800)*5%)
    whereas in
    Q2 – AR is not decreased by irrecoverable debt write offs:
    (173,760*2%) and not ((173,760-2040)*2%)
    Just trying to find a logic…

    • Profile photo of John Moffat says

      I assume you are referring to the test questions at the end of the chapter.

      The difference between them is in the wording of the question.

      In question 1, the question says “it was THEN decided to write of debts….: which means that they had not already done so.

      However, in question 2, the question says “During the year…….irrecoverable debts were written off). This means that they have already been removed as irrecoverable.

      I hope that explains the difference, but if you are still unclear then please do post again.

  3. avatar says

    Hi John,

    I’m a little confused over questions 2 and 3 on the end of chapter test.
    Here is how I did question 2:
    2040+((173760-2040)x2%)-5376
    =2040+3434.4+5376
    =98.4 = A (is this the correct method and answer?)

    And question 3:
    1. 50000 – 2500 (irrecoverable debt) = 47500
    2. 47500 – 1800 (previous irrecoverable debt that has now been paid, so it is like negative expense or added income) = 45700 (final answer)

    I don’t know what I’m doing wrong here.

  4. avatar says

    Great lecture Mr. Moffat!

    But now I am bit confused with the difference between Allowance and Impairment (in this case impairment for receivables).

    Thanks in advance!

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