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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Allowance for receivables and irrecoverable debts
A company has trade receivables totalling $25,000 after writing off irrecoverable debts of
$500, and an allowance brought forward of $2,000. The company wishes to carry forward an
allowance equal to 10% of trade receivables.
What will be the effect on profit of adjusting the allowance?
$1500 decrease
$700 increase
$ 1000decrease
$1000 increase
Sir,
Bal C/f 250000*10% = 2500
Less : Bal b/f =( 2000). Increases in allowance 500
Even if we add irrecoverable debt 500 then it will 1000 increase right. I have done like this sir
But ans is 1000 decrease how .
Can you correct me where I did wrong ??
Can you solve this question?
The increase in the allowance together with the irrecoverable debt mean in increase in the expense of $1,000. An increase in the expense will decrease the profit.