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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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  • Author
    Posts
  • June 20, 2021 at 2:21 pm #625924
    shaunak22
    Participant
    • Topics: 217
    • Replies: 41
    • ☆☆☆

    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 receivables

    What 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 =6990

    really confused since i have done all the other sums in the similar manner ? why is this one diffrerent or is it wrong?

    June 21, 2021 at 6:30 am #625956
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51549
    • ☆☆☆☆☆

    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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