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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 increaseSir,
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.
Hi sir. I have a similar query.
A company has trade receivables totalling $16,000 after writing off irrecoverable debts of $500, and a loss allowance brought forward of $2,000. The company wishes to carry forward a loss allowance equal to 5% of trade receivables.What will be the effect on profit of adjusting the allowance?
A.$700 decrease
B.$700 increase
C.$1,200 decrease
D.$1,200 increasemy answer was 700 increase.
16000 * 0.05 = 800 so 1200 decrease in allowance this year
(1200) + 500 = (700) so a decrese of 700 in expenses should increase the profit by 700
but the answer provided by acca study hub says 1200 increase (D). pls help me out.
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