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FA Chapter 8 Questions Irrecoverable Debts and Allowances

 

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  3. Q3 makes no sense.
    Why are the irrecoverable debts not deducted from the receivables when deriving the new allowance?

    If they were already written off during the year according to the answers, then how can the decrease in allowance be deducted from it to reduce the total expense?

    • The question makes perfect sense (and is a past real exam question!).

      It specifically says that the debt was written off during the year, and so the net expense for the year is the irrecoverable debt less the decrease in the allowance for receivables (as explained in the free lectures).

  5. In question 4 why did they not subtract the 2900 yet even in the answer notes they say that the amount should be credited in the receivables account making the answer(50000+1800-2500-2900)

  7. Asssalam u Alaikum
    Why we add Kenn in Receivables???
    But when Irrecoverable debt is recovered….
    The Accounting entry is:
    Dr Cash
    Cr Irrecoverable debts Expense
    (Kaplan Publishing)
    Plz Kindly Clarify…
    Thanx

  10. However I do like to point out, there’s some correction to be added.

    Q1 – ‘o’ has been written instead of ‘off’.

    And in one of the working for the answers, your wrote =38,000 instead of 36,000. (Although the final answer was correct)

  15. Hello, in question 2 – why are we calculating the new allowance only of the receivables of $185K and ignoring the previous year? Is it a tricky question and because it is only mentioned that the company had receivables of $140K and not calling it a balance we ignore it?

    • The allowance required at the end of the year is always calculated on the receivables at the end of the year.

      When the question says that the receivables on 31 December are $140,000 it does not need to use the word ‘balance’ because it can only be the balance!

      Did you watch the free lectures on this before attempting the test?

      • Sir I also don’t get it why don’t we use 140,000 + 185,000 to find new allowance because our last example 3 we used previous year’s receivables.

      • The allowance is always calculated on the balance on the receivables at the end go the year which was 185,000 (and not 140,000 + 185,000). The expense in the SOPL is the change in the allowance over the year.

        Did you watch the free lectures before attempting the test?

  16. Hello sir,
    I think there is no any other indication for Ken except this small point at starting the question ( This including…) otherwise we are not supposed to Credit the receivable for receiving the cash which had been previously written off. In stead we will record this amount (e.g: 1800) as sundry income.
    Thanks in advance

  17. Hello sir ,

    Question 4 is still confusing in Ken part – 1800. I understand that 1800 was is to be debited from the recivabkes and credit irrecoverable exp. so if it’s debited it means that it will be
    1. 50,000- 2500= 47500
    2. Then 47500- 1800( debiting the receivables ) = 45700
    3. 45700 + 1800 = 47500 then crediting the receivables again.

    Are we suppose to leave the 1800 and not debit it and add to it again

    For the answer to be 49300 it means the receivables was not debited with the 1800.

    Please kindly clarify .

    Thanks a bunch

  18. I really do not understand sir. When the question said “adjust the allowance for receivables to the equivalent of 5%”, does it mean that 93 600 must be reduced to 57 600? If that is the case, then shouldn’t the 57 600 (seeing as it is now the balance on the allowance for receivables account) be debited to the irrecoverable and doubtful expense account (88 800 + 57 600=146 400) and then credit the irrecoverable and doubtful debt expense account by (93 600 – 57 600=36000)? That would then leave a balance on the irrecoverable and doubtful debts expense account of (146 400 – 36 000=110 400)? I am trying to do it in the T-accounts way because I understand better that way.

    • There is already a credit balance on the allowance account of 93,600 from last year. We need to reduce this to 57,600 and we therefore debit the allowance account with the difference of 36,000 and credit the irrecoverable debts expense account.

      For the irrecoverable debt, we debit the irrecoverable debts expense account with 88,800.

      This leave a balance on the irrecoverable debts expense account of 52,600 to be transferred to the SOPL.

      Did you watch the free lectures on this before attempting the test?

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