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North Co has a receivables balance at 31 October 20×7 of $ 456330. The accountant at North is preparing the financial statements for the year ended 31 October 20×7 and must account for the following.
1.A balance owed by South aco of $780 is deemed irrecoverable and must be written off.
2.The brought forward receivables allowance is $15255. Allowance for receivables should be adjusted to the of 5% of the outstanding receivables balances.
3.A payment of $450 from East Co has been received on 30 October . The payment relates to a balance that had previously been written off as irrecoverable by North Co.What value for receivables should appear in the statement of financial position of North Co at 31 October 20×7?
A) 433733.50
B) 432772.50
C)433222.50
D)433513.50Hi sir, why is not the answer C but is B?
Why is not $450 calculate?The balance on receivables is 456,330 – 780 = 455,550.
The allowance for receivables is 5% x 455,550 = 22,777.50
Therefore the net value for receivables is 455,550 – 22,777.50 = 432,772.50
The 450 irrecoverable debt recovered is not relevant because it was received on 30 October and will therefore have been dealt with (and dealt with correctly, otherwise the question would have said. They will have Dr Cash; Cr Irrecoverable debts expense as usual, and therefore the receivables figure is not affected).
Have you watched my free lectures on this? The lectures are a complete free course for Paper FA (F3) and cover everything needed to be able to pass the exam well.
Thanks a lot sir!
An increase in an allowance for receivables of 8000 has been treated as a reduction in the allowance in the financial statements. Which of the following explains the resulting effects?
Correct answer: Net profit overstated by 16000 , receivables overstated by 16000.
Please explain this question to me.
Why is not 8000 but is 16000?For this kind of question, make up your own figures to see what happens if it is not obvious to you.
Suppose before the change in allowance, receivables were 50,000 and allowance was 20,000. So net receivables were 30,000.
The allowance increases by 8,000, so they should have got receivables of 50,000 and allowance of 28,000. So net receivables should be 22,000.
What they have done is reduced the allowance, so they have got receivables of 50,000 and allowance of 12,000. So they have net receivables of 38,000.
So they have overstated by 38,000 – 22,000 = 16,000.
I ask you again – have you watched my free lectures on irrecoverable debts and allowances?
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