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At 1 jan 20X4,tarter co. had total receivables of $380000.A specific allowance of $20000 had been made for a business customer,drab..general allowance was 2.5%.during the year drab went out of business owing tarter co. $28000,none of which is expected to be recovered.At 31 dec 20X4,tarter had total receivables of $420000.there were no allowances and the general allowance was increased to 3%.
#what is the charge in the SOPL for the year to 31 dec for the allownace and irrecoveeable debts??
a. $16400 b.$31400 c. $44400 d. $11600the answer is (D) $11600.
but my calculation was,
opening allowance=20000+(380000-20000)X2.5%=29000.
closing allowance=(420000-28000)X3%=11760.
SOPL:
irrecoverable debt-decrease in allowance=(28000-17240)=10760(my answer)
#why they didnt deduct the irrecoverable debt from the total receivables before calculating general allowance??
#as in the question it is not mentioned that irrecoverable debt is written off..so we should write off it first..
sir plz help!!opening allowance = 20000+(380000 – 20000)x 2.5% = 9500
closing allowance = ( 420000 – 28000)x3% = 11760
SOPL = 9500 – 11760 = 2,260
Because the difference between the opening allowance less the closing allowance is what we charge SOPL
In the interest of ensuring you properly understand the reasoning, let me break it down for you.
At 1 Jan 2014 (actually 31 December 21013) the following obtains.
1. Receivable = 380,000
2. Specific allowance = 20,000
3. General allowance = (360,000 – 20,000)*2.5% = 9,000
4. Total allowance = 20,000 + 9,000 = 29,000At 31 Dec 2014
1. Impaired receivable = 28,000
2. Receivable = 420,000 (this is net of the impaired receivable amount since it is known that this amount is virtually uncollectible.)
3. General allowance = 420,000 * 3% = 12,600
4. Total Allowance = 28,000 + 12,600 = 40,600Reconciliation
1. Opening balance of allowance = 29,000
2. Closing balance of allowance = 40,600
3. Charge to P&L = 40,600 – 29,000 = 11,600I hope this helps.
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