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Apple has her own business selling dolls to stores. At 30 June 2013 she has a balance on her
trade receivables of 60,900
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 wishes to provide an allowance for 60% of their balance of
$1,600. She has also decided to make a general allowance for receivables of 10% of her
remaining trade receivablesWhat is the allowance for receivables in her Statement of financial position at 30 June 2013?
SOLUTION GIVEN –
Specific allowance = 60% x 1,600 = 960
General allowance = 10% x (62,900 – 1,600 – 2,000) = 5,930
Total allowance = 960 + 5,930 = 6,890
(We do not have a general and a specific allowance on the same debt)DOUBTS – isn’t the solution given above wrong since the general allowance should be calculated as follows –
(receivable)60900-2000(bad debt) – 1600(specific allowance) *10% = 5730
hence total allowance 5740+ 960 =6990really confused since i have done all the other sums in the similar manner ? why is this one diffrerent or is it wrong?
As the solution given states, they are not going to have a general allowance on the same debt on which they have given a specific allowance.
They have decided that $1,600 of the $2,000 debt is doubtful and have made an allowance. They therefore must expect the remaining $400 to be a good debt and so don’t need more allowance.
What you are doing is having the general allowance to include 10% of the $400.
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