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At the beginning of the year, the allowance for receivables was $850. At the year-end, the allowance required was $1,000. During the year $500 of debts were written off, which includes $100 previously included in the allowance for receivables.
What is the charge to statement of profit or loss for receivables expense for the year?
A. $1,500
b. $1,000
C. $650
D. $550Answer is C.
I am confused as question above this in BPP kit (11.9) said that when we write off a debtor which was allowance before so Dr Allowance for Receivable Cr Account Receivable. We would not expense it as expensed earlier.
Here, we have Irrecoverable debt expense of 100 which was Allowance before. How it is possible?The answer is $650 and you can get it in two different ways (and it doesn’t matter which way).
The easiest/quickest way is to say that the expense is the cost of increasing the allowance from 850 to 1,000 (so 150) plus the cost of the debt written off of 500. 500 + 150 = 650.
Alternatively, given that 100 of the amount written off was included in the allowance of 850, reduce the allowance by 100 to 750.
This leaves 400 as the expense, plus the cost of increasing the allowance from 750 to 1,000 which is 250. 400 + 250 = 650.I do explain this in my free lectures on irrecoverable debts and allowances.
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