- This topic has 11 replies, 3 voices, and was last updated 11 years ago by
.
- Posts
6. Apple owns her own business selling dolls to stores. At 30 June 2008 she had the following balances in her books:
Trade receivables: 62,900
Allowance for receivables: (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 wished to provide an allowance for 60% of their balance of $1,600. She also decided to make a general allowance for receivables of 10% of her remaining trade receivables.
What was the allowance for receivables in her Statement of Financial Position at 30 June 2008?
A) $7,530
B) $6,890
C) $7,090
D) $6,954
WHO CAN HELP SOLVE THIS QUESTION PLEASE.THANKS FOR THE COOPERATION.I believe the correct answer is D.
1. Out of total receivables 62,900, 2,000 is written off to the income statement so the remaining balance of receivables is 60,900.
2. Allowance for Y Co is 1,600×0.6=960, however, there is already 900 provided for, therefore additional allowance required is only 60.
3. General provision is made to all the unprovided receivables amounting to 59,940= (62,900 – 2,000 – 900 – 60) x 0.1 = 5,994
4. Total provision is general provision 5,994 + specific provision 960 = 6,954.Please let me know if this is the correct answer.
Thanks@eni004, the answer you got was what i got but the correct answer was B, so what am thinking is that the examiner provided 10% of the remaining receivable of Y Co which is (1600-960) x 0.1=64
And made 10% General provision on the total remaining receivable of (62900-2000-960) x 0.1= 5994
Therefore,the total general provision of 5994 + specific provision of 960 less (-) 64 of Y Co = 6890.Actually we both made a stupid mistake!
The calculation goes like this:
Specific provision: 1,600 x 0.6 = 960
General provision (62,900 – 2,000 – 1,600) x 0.1 = 5,930
Total provision = Specific provision + General provision = 6,890The point is there should be no general provision made on the receivables for which a specific provision was already made.
Hope this is clear…
yeah,that’s really simplest way,thanks alot for sharing ur knowledge with me.May God bless u and grant u more wisdom and knowledge with understanding.
yes i did that question today and i just guessed the answer as it was close to my answer than later i tried reasoning with it i then looked at some notes how to calculate movement in allowances but didn’t have what i wanted then i came back to this website now and opened forum to ask for help on this question when i saw the solution i became much clearer now i know how to do it so we don’t incorporate the 900 at the beginning. please reply
No need to incorporate 900 at the beginning because in order to calculate allowance for receivables you start with your gross unprovided receivables. The confusion is maybe coming from Y Co – its receivable is 1,600 and the company provided 60% for this receivable – since the specific provision is made (1,600×0.6=960), there is no need to do a general provision as well (on the remaining amount (1,600-960=640) . So in order to calculate allowance for receivables in the statement of financial position you should start with your gross unprovided receivables (62,900) – receivable written off (2,000) – receivables for which specific provision was made – (1,200) and on this amount you calculate general provision. Total provision will be equal to specific provision + general provision.
The question is not asking about the movement in the allowance, but if it did then you would start with what is already in the books (900) and would compare it to what the company should have (6,890) – difference should be charged to the income statement.eni004,i think u have made a typing mistake, instance of 1600,u typed 1200,so please try to rectify it cause someone may see it the answer been wrong.thanks all for ur cooperation
- You must be logged in to reply to this topic.