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  2. In your example one run through, we deducted 2500 and 1600 for Irrecoverable then another 2,224 for the 4% allowance – when redoing for layout, we deducted the total of these at 5,024.

    On the SOPL, you had expense of 2500 + 1600 + 5024, is this not double counting the Irrecoverable Debt? Why do we not have expense of 5,024?

    • The 5024 is the total of the general allowance of 2224 and the specific allowance for Z of 2800. It does not include the irrecoverable debts and there is no ‘double-counting’.

      I do suggest that you watch the lecture again (and I assume that you did print out the free lecture notes and therefore have the example in front of you?).

  3. Good evening Sir,

    At 30 June a company’s allowance for receivables was $93,600. At 30 June 2008 trade receivables totalled $1,240,800. It was decided to write of debts totalling $88,800, and to adjust the allowance for receivables to equivalent of 5% of the trade receivables based on the past events.
    What figure should appear on the statement of profit or loss for the year ended 30 June 2008 for these items?
    My answer is $57,600, but the correct one is $52,800. Could you please explain? What am I missing?

    • hi

      the receivable after write off are 1,152,000.00
      the allowance is 93,600.00
      company is adjsutin for 5% of receivable

      then 1152000*0,05= 57,600 therefore we need to reduce the allowance for 93600-57600 = 36000 (reduction of liabilty, take it as income);
      then you need to consider that during year you have written off 88,000 (expense)
      in the P/L the total expense will be (88000)-36000=52,800.

      always remember if any writeoff has been done during year this need to be included in the expense fro the current year.

      hope is clear now

      • Here we are talking about receivables.
        If you reduce the value of receivables you are reducing the value of an asset, but at the same time it is costing the business to reduce the value which is an expense.

        I do suggest that you go back and watch the earlier lectures – especially the lectures that go with Chapter 2 of the lectures notes. These look at the dual effect of transactions which is a fundamental principle of accounting and effects everything that follows.

  5. Good Morning Tutor,

    I have a question about irrecoverable debts and allowances as it is not clear.
    At 1JAN04 Tartar Co had total receivables of $380,000. A specific allowance of $20,000 had been made for a business customer, Drab. General Allowance for receivables was 2.5%. During the year, Drab went out of business owing Tartar Co $28,000, none of which is expected to be recovered. At 31DEC04 Tartar had total receivables of $420,000. There were no specific allowances but the general allowance for receivables was increased to 3%.

    My question is, why do they calculate the GA as 3% x 420,000 = 12,000. I thought we have to deduct the irrecoverable debt first like 420,000 – 28000 x 3 .

    (Correct answer is $11,600)

    Thank you for your help.

    • It is because the question has assumed that the 28,000 had been written off during the year and therefore the 420,000 was after removing the 28,000.

      (If the question had said that the balance was 420,000 but then they discovered at the end of the year that 28,000 was irrecoverable, then you would have subtracted the 28,000 before calculating the 3%)

      • Hi John,
        Thanks for your explanation!
        But, indeed, I’m trying in many ways to find out how do you agree with the right answer ($11,600). Could you please explain how do you calculate it?

  6. Good Day my Tutor!
    For record purpose and credit worthiness of customers dont u think that Irrecoverable (Bad) Recovered Debt A/c should be debited (kept) instead of crediting Irrecoverable and Doubtful Debt A/C?

    • A business may well want to keep a record of creditworthiness etc, but that has nothing to do with the ledger accounts. The ledger accounts are there to enable us to calculate the profit and to prepare a SOFP at the end of the year.

      We cannot show money as owing to us if it is irrecoverable , and it must be removed. CR Receivables; DR Irrecoverable debts expense.

      • I was actually referring to Paul in example 2 & 3. In example 2 Paul’s debt was irrecoverable & in example 3 he paid 2,200 from the 3,000 that was irrecoverable. My question was why don’t we credit an A/c called Bad Debt Recovered A/c with the 2,200 instead of crediting Irrecoverable and Doubtful Debt A/c?

      • Thanks a lot! I’m proud of you and ever since i discovered your site i have told several others about it. You are a gift to existing and prospective accounting students and practicing accountants.

  7. Good Day my Tutor!
    For record purpose and credit worthiness of customers dont u think that Irrecoverable (Bad) Recovered Debt A/c should be debited (kept) instead of debiting Irrecoverable and Doubtful Debt A/C?

  9. Good Morning,
    I understand how to apply this. However, some questions do not seem to specify if the Irrecoverable debt has been written off, or trade receivable is net of irrecoverable debts.So when calculating the entry on P/L, I am not sure whether to deduct the Irrecoverable debt and then caluclate the Allowance based on the balance, plus the irrecoverable debt; or to calulate on the total TR. EG.
    Irrecoverable debts are $5000. Trade Receivables are $120,000. An allowance of 5% is required. What is the entry for Irrecoverable debts and allowance for receivable on the P/L?
    a.$5000
    b.$11000
    c.$6000
    d.$10750
    In the first instance : ((120,000 – 5000 ) x 5%) + 5000 = 10750 (a)
    or
    5000 + (120,000 x 5%) = 11,000

    The correct answer is b. I was torn between both and opted for d, But I do not want to lose 2 marks for this! How do I know when to apply the caluculation to the total figure, or net of irrecoverable debts. There seem to be question of both types.
    Many Thanks John.

    • In the exam they will make it clear, but you have to be very careful with the wording. If it says that they ‘had been written off’ or that ‘they were written off during the year’ then they have already been removed from the balance. If it says ‘it was decided to write off’ then they have not yet been removed.
      Hope that makes sense 馃檪

      • Thank you John. I hope it will be clear in the exam. The question above did not seem clear and it was from BPP. I will read the question very carefully regardless, and hope for the best!

  12. can someone please help with this question
    Venus acquired 75% of mercury co $100000 $1ordinary share capital on Nov 1 2011. the consideration of mercury$2 cash per share and $1 share in Venus for every 1share acquired in mercury co.
    Venus co share have a nominal value of $1and a fair value of and$1.75.the fair value of nci was $82000 and fair value of of net asset was$215500.what should recorded as goodwill acquisition if Venus co in the consolidated financial statement

    • Calculate the total that Mercury was valued at – the cash plus the fair value of the shares in Venus plus the fair value of the NCI.

      Subtract from this the fair value of the new assets.

      The difference is the goodwill arising on consolidation.

      (Please do not ask questions about consolidations under a lecture on irrecoverable debts. Either ask in the F3 general forum, or in the F3 Ask ACCA Tutor forum)

  13. Good Afternoon
    I am asking for your assistant for the question below. I state the answer I got but I am not sure how they got the correct answer.
    3. Apple owns her own business selling dolls to stores. At 30 June 2008 she had the following balances in her books:
    Trade receivables: 62,900
    Allowance for receivables: (900)
    A balance of $2,000 due from X Co is considered irrecoverable and is to be written off. Y Co was in financial difficulty and Apple wished to provide an allowance for 60% of their balance of $1,600. She also decided to make a general allowance for receivables of 10% of her remaining trade receivables.
    What was the allowance for receivables in her Statement of Financial Position at 30 June 2008?
    ? $6,890 but this is the correct answer
    ? $6,954 This was the answer I selected
    ? $7,090
    ? $7,530

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