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- This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- November 18, 2017 at 5:34 pm #416473
Question:
“Panther owns her own business selling Gladiator dolls to department stores. At 30 June 20X2 she had the following balances in her books:Trade receivables $31,450
Allowance for receivables (General) (as at 1 July 20X1) $(450)A balance of $1,000 due from Selfrodges Co is considered irrecoverable and is to be written off. Horrids Co was in financial difficulty and Panther wished to allow for 60% of their balance of $800. She also decided to make a general allowance of 10% on her remaining trade receivables. What was the allowance for receivables in her statement of financial position at 30 June 20X2?”
My Answer
“General allowance =10%*((Trade receivables – irrevocable debts) – Horrids) = 10%*((31.45 – 1) – 0.8) = 2.965
opening allowance-450
closing allowance-2965
equal to increase in allowance-2515irrecoverable debt-1000
increase in allowance-2515
equal -3515
really confused?
need explanationAnswers of the book:
“General allowance =10%*((Trade receivables – irrevocable debts) – Horrids) = 10%*((31.45 – 1) – 0.8) = 2.965Specific allowance = 0.8 * 60% = 0.48
Total allowance = 3.445”November 18, 2017 at 7:07 pm #416482Firstly the question asks for the allowance at the end of the year (not for the expense in the SOPL which is what you went on to calculate).
Secondly, your general allowance is correct (2925), but the question also says there is to be a specific allowance for 60% of Horrid. So the final allowance at the end of the year is 2965 + (60% x 800).
November 18, 2017 at 9:50 pm #416521Yeah it says general allowance at the end.i did not pay attention to it sorry.Thanks for explaining
November 19, 2017 at 9:43 am #416581You are welcome 🙂
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