The revenue generated by barker was $2million and it’s account receivable were equivalent to 5% of revenue. Following a review at the year ends , barker required an allowance for receivable of $4000 which would make the allowance one-third higher than the current allowance.
How will the profit for the period be affected by change in allowance?
The allowance had been 3,000.
1/3 higher brings that to 4,000.
The allowance has increased by 1,000 and this will be charged against profits, so lowering them by 1,000.
How do you get 1000
While if you multiply 1/3×4000=1333.3
4000 is 1/3 higher than the previous year, so the previous tear must have been 3000:
3000 + 1/3 x 3000 = 4000
Thanks got it
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