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Hello sir,
I have found the same question from different BPP kits with different answers.In the study book the correct double entry is Debit: Irrecoverable debts Credit:Receivables
But it is confusing me that what about previously made allowance? Is written off debt credited to irrecoverable debts account at the year end? Thanks in advance11.9 A company has been notified that a customer has been declared bankrupt. The company had previously
made an allowance for this debt. Which of the following is the correct double entry to account for this
new information?
Debit Credit
A Irrecoverable debts Receivables
B Receivables Irrecoverable debts
C Allowance for receivables Receivables
D Receivables Allowance for receivables
Answer:
11.9 C The debt needs to be fully written out of the books. An allowance was already made, so the SPL
has already been charged ie:
Dr Irrecoverable debts (SPL) X
Cr Allowance for receivables (SOFP) X
Therefore you only need to clear the balances from Receivables and Allowances for receivables,
which option C will do.11.8 A company has been notified that a customer has been declared bankrupt. The company had previously
made an allowance for this debt. Which of the following is the correct double entry to account for this
new information?
Debit Credit
A Irrecoverable debts Receivables
B Receivables Irrecoverable debts
C Allowance for receivables Receivables
D Receivables Allowance for receivables
Answer:
11.8 A The debt needs to be written off. The allowance previously made will be adjusted at the year end.This is very naughty of BPP because either entry is OK – if the debt is written off to the allowance, and doesn’t go to irrecoverable debts then there is a bigger change in the allowance. If the debt is written off to irrecoverable debts, then there is a smaller change in the allowance. The total of the two (irrecoverable debt plus change in allowance) is the expense for the year, and will be the same whichever you do.
Because either approach is OK, it is unlikely to be asked in this form in the exam. If it is asked with this wording, then the answer to 11.9 (i.e. C) would be better. However in a question involving numbers, then it doesn’t matter – the answer will be the same either way.
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