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ALLOWANCE

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › ALLOWANCE

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • June 14, 2021 at 7:02 pm #625288
    shaunak22
    • Topics: 195
    • Replies: 32
    • ☆☆☆

    Doris currently has a receivables balance of $47,800 and an allowance for
    receivables of $1,250. She has just received $150 in respect of half of a
    debt that she had made an allowance against. She now believes the other
    half of the debt to be bad and wants to write it off. She also wants to
    increase the allowance for receivables to $1,500.
    What is the total charge to the statement of profit or loss in respect
    of these items?
    $ ________(400) the ans

    DOUBT – how is the ans be 250

    since the allowance for receivable is 1250 out of that allowance 150 is bad debts so the balance on the allowance should be 1100 and in the question they have asked to increase the allowance to 1500 so the increase in allowance should be 400 this should be charged as an expense in pnl but should the amount recovered (150) be subtracted from the 400 and then the balance amount should be posted to the pnl??

    June 15, 2021 at 8:17 am #625310
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49601
    • ☆☆☆☆☆

    The answer is not 250. It should be 400.

    The most efficient way is that there is the cost of the debt writing off of 150 plus the cost of increasing the allowance by 250 (1500 – 1250), so a total of 400.

    Have you watched my free lectures on irrecoverable debts and allowances, because I explain a similar problem in the lectures?

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