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At 1 January 20×1, there was an allowance for receivables of $3,000. During the year, $1,000 of debts were written off as irrecoverable, and $800 of debts previously written off were recovered. At 31 December 20×1, it was decided to adjust the allowance for receivables to 5% of receivables which are $20,000.
What figure should be included in the statement of profit or loss as the receivables expense for the year?Ans…… 1800 credit
i guess it should be this,
allowance = (20000-1000)*5%= 950
different between allowance is =3000-950= 2050*** receivable expense = 2050+800-1000= 1850 credit
please explain if I’m wrong …
Thanks.The irrecoverable debts were written off during the year.
Therefore the receivables of $20,000 are after writing of the debts and the allowance required is 5% x 20,000 == $1000. (not 950).
So if it’s written as, It was decided to write off debts totalling $1000. Then we have to do like, (20000-1000)*5%=950
am i right, sir?Yes, in that case you would be correct!
You have to be really careful to check the wording in the exam 🙂
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