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At 1 jan 2004,tartar co had total receivables of $380,000.A specific allowance of $20,000 had been made for a customer,drab.The general allowance was 2.5%.
During the year,drab went out of business owing tartar co $28,000.None of which is expected to be recovered.
At 31 dec 2004,tartar had total receivables of $420,000.There were no specific allowances but the general allowance was increased to 3%.
what is the charge in the SOPL for the year to 31 dec for the receivables allowance and irrecoverable debt?
a.$16,400 b.$31,600 c.$44,400 d.$11,600the kit says the answer is $11,600.
but my calculation was:
Opening allowance:$20,000+($360,000X2.5%)$9000=$29,000
closing allowance:(420,000-28,000)X3%=$11760
decrease in allowance is $17240.
irrecoverable debt is $28,000.
so, receivables expense to the Sopl is $10760.
Am i right sir??plz answer..The answer has assumed that the closing receivables of $420,000 is after removing the irrecoverable debt of $28,000.
However, the question did not specifically say that (assuming you have copied it correctly) and therefore your answer is correct.I have copied the question correctly..
thank u for ur prompt response moffat sir…Good day Mr Moffat, I have a little trouble to understand one topic in the exam kit on Irrecoverable debts and allowances for receivables. Exercice no 71, because they said: one-third higher and not a quarter higher how does the answer gives us 1000 by using 3/4 and not 1/3 as it said? thank you.
The sales revenue in a company was $ 2 million and its receivables were 5% of sales. The company wishes to have an allowance for receivables of 4% of receivables, which would make the allowance one-third higher than the current allowance.
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