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The trial balance of Offenbach showed year-end trade receivables of $122,000 at 31 March 20X7, an opening general loss allowance of $2,980 and an opening specific loss allowance of $2,000.
After the extraction of the trial balance, it was decided to carry forward at 31 March 20X7 a specific loss allowance of 100% on an irrecoverable debt of $1,600 and a general loss allowance of 1% of remaining accounts receivable. It was also decided to write off the debts amounting to $2,000 which had been fully allowed for at 1 April 20X6.
What is the total charge/(credit) to profit or loss in respect of irrecoverable debts for the year ended 31 March 20X7?
Answer. (196).
TR 120000
General allowance 1200
specific 1600
Total allowances 2800My Workings and answer:
Decrease -2180
irrecoverable 2000
SOPL -180I have watched the lectures. I’m confused why they have not added back the 1600 of irrecoverable debt to receivables since those 1600 of irrecoverable have now become allowances.
The question should not really refer to the 1600 as being an irrecoverable debt because if it was irrecoverable they should write it off. However since the question says that they intend to have a specific allowance for it, it must mean that they have not written it off and that it why they are having an allowance.
Again it is a poorly worded question. I don’t know who wrote it, but questions in the real exam are worded properly and do not cause this sort of confusion 🙂
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