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Greetings sir,
Sir, bpp FA receivables and allowance, 11.13. Pg53
The answer is given as C ($650), but it should be D ($550), because $100 from the $500 written off was already previously as stated in the question – included in the allowance for receivables, and this means thus also already charged previously to the P&L. So we must deduct this from the $500 written off to avoid charging it the second time, and get the answer d)$550, instead of c) $650. Please double confirm if I am correct, with confirmation, or if I am wrong, with explanation.
The answer is correct at $650.
You can get the same answer in two ways.
If you want to do it your way, the $100 was removed during the year from the allowance brought forward of $850, which leave a balance of $750. They question says that they want to end up with an allowance of $1,000 which means increasing the balance by $250.
In addition they wrote of another $400 during the year, and so the total expense is $650.More efficiently is to write of all of the debts of $500 without touching the allowance. That means the balance is still $850 and it needs increasing to $1,000, so an expense of $150.
Therefore the total expense is 500 + 150 = $650.Do watch my free lectures on irrecoverable and doubtful debts where all this is explained. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
I had assumed the “$100 previously included in the allowance” meant before the beginning of the year in another past accounting year, now being mentioned as a reference for the question, and that the $850 allowance in the beginning of the year was after the removal of $100 was taken care of. So I was just focusing on the impact of the past charges of the $100.
Thanks sir. Sometimes misunderstanding the question makes us loose half the scores.
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