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Hi,
Can somebody please kindly explain to me why the answer is 6890? There is no working process and I really cannot work this out. Please help! Thanks in advance!14. Apple owns her own business selling dolls to stores. At 30 June 2008 she had the following balances in her books:
Trade receivables: 62,900
Allowance for receivables: (900)
A balance of $2,000 due from X Co is considered irrecoverable and is to be written off. Y Co was in financial difficulty and Apple wished to provide an allowance for 60% of their balance of $1,600. She also decided to make a general allowance for receivables of 10% of her remaining trade receivables.
What was the allowance for receivables in her Statement of Financial Position at 30 June 2008?
$7,530
$6,890
$6,954
$7,090- Topics: 13
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Let’s see:
Trade receivables 62,900
Less irrecoverable debt (2,000)
Less balance for which specific allowance required (1,600)
=> Receivables balance for which general allowance required = 59,300
10% x 59,300 = 5,930 General allowance
Balance for which specific allowance required = 1,600
60% x 1,600 = 960 Specific allowance
=> Total allowance for receivables for inclusion on SOFP = 960 + 5,930 = 6,890They do not asked the movement in allowance, so you can ignore the allowance (900). If it did, you should calculate : 6890 – (900) = 7790 (from (900) at the beginning, your new allowance is 6890, so it was increased by 7790 and should be an expese en Income statement)
Another notice, if they give the fact “During the year, the irrecoverable debts of $ xxx and A/R at the year end $ iii”. You should not exclude $ xxx from $ iii because A/R already did that “during the year”.
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