I came across this question on BPP text for F3 (p219).
Q: Irrecoverable debt: $5,000. Receivables at the year end: $120,000. If allowance is 5%, what’s the entry for irrecoverable debts and allowance?
BPP has it at this way:
$5000 + (5% * 120,000) = $11,000
But shouldn’t we deduct the irrecoverable debt from the receivables first and then calculate the allowance??
As far as I find out in the way of receivables studying, when the questions give you information like below:
- it was decided to write off . . .
- directors wished to write off . . .
- $x to be written off
- and other statements that imply to deduction of irrecoverable amount
we have to adjust the closing balance of receivables but in the question that you gave it, we don’t have any key points that refer to deduction the amount of irrecoverable debt. so it means that the receivables account given in the question is final account of receivables.
Thanks Mahdi jan,
But I think there should be a more strict criteria on how to deal with these kinds of questions.
yes your are absolutely right. I came to that problem too and tutor said that it was already deducted. but it is not obvious that it is… .
and there are not a few confusing questions. Especially if English is your native language.
It does make sense. I am clear now why we don’t need to deduct 5000. Cheers
You’re welcome dear littlestart
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