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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 ansDOUBT – 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??
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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