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QUESTION 26
Bensons, a limited liability company has year-end trade receivables of $45,879. On review of
the receivables it is established that one outstanding balance for $3,079 will not be paid as
the customer has gone into liquidation. In addition the directors of Benson’s feel that due to
the current climate 10% of receivables need to be provided against as a general provision.
The opening balance on the allowance for receivables was $2,767.
What figure will appear in the income statement in relation to irrecoverable debts and what
will be the net trade receivables figure that will appear in the statement of financial position
at the year end?
Income statement Statement of Financial Position
A $4,592 $38,520
B $7,359 $38,520
C $7,359 $42,800
D $4,592 $42,800write off to bad debts those which are irrecoverable due the liquidation Cr receivables Dr bad debts(expenses), that gives you 45879 minus 3079 = 42800, then provide 10% general provision – you need 4280 but already you have the opening balance of 2767 so need to post additional 1513 . So I think bad debts are 3079 (written off) plus provision 1513 = 4592 – answer D
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