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Irrecoverable debts and allowance for receivables

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Irrecoverable debts and allowance for receivables

  • This topic has 11 replies, 4 voices, and was last updated 1 month ago by John Moffat.
Viewing 12 posts - 1 through 12 (of 12 total)
  • Author
    Posts
  • January 9, 2019 at 8:52 am #500438
    yusra97
    Participant
    • Topics: 66
    • Replies: 61
    • ☆☆

    In the statement of financial position at 31 Dec 20X5, Boris reported net receivables of $12000. During 2006 he made sales on credit of $125,000 and received cash from credit customers amounting to$115,500. At 31 dec 2006 boris decided to write off debts of $7100 and increase the specific allowance for recievables by $950 to $2100.
    Sir I have watched your videos yesterdayy, still struggling what to do?
    anyhhow here.. 12000-7100=4900 , also add 1150 (increase in allowance)then made a T account Dr 125000 cr115,500 so the answer comes as 15550. but the correct asnwer is 13,450…at the back of the kit the answer is that 15,550 is the gross receivables then subtracting 2100 to get 13,450…sir i dont get this part..okay we need to find out the net receivable so net means all allowances or irrecoverable debt subtracted ? or is it the gross receivable then secondly dont get why 15550 is being subtracted to 2100..it is an increase in allowance..should it not be added? please clear my concepts sirr

    January 9, 2019 at 9:00 am #500442
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    Net receivables means receivables less allowance (i.e. the final amount showing on the SOFP)

    January 9, 2019 at 9:32 am #500445
    yusra97
    Participant
    • Topics: 66
    • Replies: 61
    • ☆☆

    so sir? how about 15550 why are they subtracting it? to allowance for receivables..please explain

    January 9, 2019 at 9:37 am #500447
    yusra97
    Participant
    • Topics: 66
    • Replies: 61
    • ☆☆

    okay i have another question
    The sales revenue of J co was $2 million and its receivables were 5% of sales. J co wishes to have a specific allowance for receivables of $ 4000, which would make the allowance one third higher than the current allowance.
    how will the profit for the period be affected by the change in allowance?
    sir here first i will find out.. 5% of 2 million =100,000 then sir i dont get it

    dont get this
    Required specific allowance for rec =4000
    current allowance for receivable = 4000 X 3/4 = 3000 how????
    inc in allowance 1000..i understand that increase in allowance reduces profit.. but please explain me the calculation of required and current allowance..how 3/4? it is one third..so 0.333 X 4000= it should be isnt it?

    January 9, 2019 at 3:11 pm #500486
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    I really don’t understand the first of these two posts.
    The net receivables on the SOFP is the receivables (15,550) less the allowance for receivables (2,100). That is how it is always presented.
    I have no idea why you are talking about subtracting 15,550 – we are not subtracting 15,550.

    January 9, 2019 at 3:15 pm #500487
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    Second question:

    If you check yourself you can see that your answer cannot be correct!

    4,000 at the end of the year has to be 1/3 more than the allowance was at the start of the year.

    If it was X at the start of the year then it will be X + 1/3X at the end of the year.
    Therefore X + 0.3333X = 4,000.

    It is then simple algebra to calculate what it was at the start of the year (3,000) and therefore that the increase is 1,000.

    April 7, 2022 at 11:44 am #652832
    AbrahamChinYuan
    Participant
    • Topics: 22
    • Replies: 22
    • ☆

    Hi Sir,

    For the first question, why the net receivables on the SOFP is the receivables (15,550)? i only able to get 14400 usd and the allowance for receivables is 2100 usd, therefore able to get 12300 usd.

    April 7, 2022 at 3:54 pm #652840
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    The balance on the receivables account at the start of the year was 12,000 + 1,150 (adding the specific allowance at the start of the year, because 12,000 was the net receivables and not the balance on the receivables account.

    The balance at the end of the year on the receivables account is therefore:
    13,150 (0pening balance) + 125,000 (sales on credit) – 115,500 (cash received) = 22,650.

    They then write of debts of 7,100, which brings the balance down to 15,550.

    The allowance is 2,100, which means that the net receivables on the SOFP will be 15,550 – 2,100 = 13,450.

    March 2, 2025 at 10:27 pm #715737
    M.Haris
    Participant
    • Topics: 15
    • Replies: 10
    • ☆

    Why we accounted for allowance in receivables account as the movement is only accounted in irrecoverable debt account

    March 3, 2025 at 3:02 pm #715757
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    We don’t account for the allowance in the receivables account, but in the SOFP we show the balance on the receivables account less the balance on the allowance account.

    Have you watched my free lectures on irrecoverable and doubtful debts?

    April 4, 2025 at 6:15 am #716460
    Dibasbadhu
    Participant
    • Topics: 1
    • Replies: 6
    • ☆

    38.ABC recognize provision of $1500 in 20X0.
    The provision is settled in $1200 during the year.
    In 20X1 the provision of ABC to another
    customer is $ 800.
    What accounting entry is required to record this
    provision?
    Dr
    Cr
    a)
    b)
    C)
    d)

    I have no idea -_-

    April 4, 2025 at 11:14 am #716463
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    I don’t know where you found this question, but it is not written in proper English and so I do not understand what it is asking.

    (Also it is not clear what provision they are referring to. If it relates to doubtful debts then we stopped using the word provision many years ago. It is now called the allowance for doubfull debts,)

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