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At 30 June 20X5 a company’s allowance for receivables was $39,000. At 30 June 20X6 trade receivables totalled $517,000. It was decided to write off debts totalling $37,000 and to adjust the allowance for receivables to the equivalent of 5% of the trade receivables based on past events.
Sir please help as I am getting these questions incorrect all the time 🙁
I assume that the question asks for the expense for the year?
If it does, then it is always:
Cost of writing off irrecoverable (here 37,000) plus any increase in the allowance (or less any decrease in the allowance).
The allowance needed at the end of the year is 5% x (517,000 – 37,000) = 24,000.
The allowance at the end of last year was 39,000. So we need to reduce it by the difference of 15,000.So the total expense is 37,000 – 15,000 = 22,000.
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