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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 62,900_
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 receivable&
What is the allowance for receivables in her Statement of financial position at 30 June 2013?the answer is 6890 and i cant get this figure.
my calculations are 62,900 -2000 -(60%*1600) then times answer by 10% getting
5994add back irrecoverable debt 2000 and specific allowance (60%*1600) and i get 8954 as my final answer
If we have an allowance of 60% of Y’s debt, we presumably are confident about the rest of it.
Therefore the whole of Y’s debt should be removed for the purposes of calculating the general allowance.Also, I have no idea why you want to add back the irrecoverable debt – the questions asks for the allowance at the end of the year.
The specific allowance is 60%x1600 = 960. The general allowance is 10% x (62900 – 2000 – 1600) = 5,930.
Total allowance = 5930 + 960 = 6890At 31 December 2013 a company had receivables of $280,000 and an allowance for receivables of $14,000.
At 31 December 2014 they had receivables of $370,000.
It was then decided to write off a debt of $8,000 as irrecoverable, and to have a general allowance of 5% of remaining debts.
What balance will be on the Allowance for receivables account at 31 December 2014?
The only thing I don’t understand in this question is how to use the Trade receivables brought forward, I understand the rest of the question. I don’t know if I have to add old trade receivables to the new one before subtracting the irrecoverable debt and then make the general allowance on the remaining trade receivables. Can you please explain?
The receivables brought forward are not relevant (and neither is the allowance brought forward either!) 🙂
Really? But I thought that after subtracting the irrecoverable debt from the trade receivables and making general allowance of 5% of the balance, I will now subtract the new allowance from the old. If there is an increase in allowance it will be credited to allowance for receivables and debited to irrecoverable debt and vice versa. Now you mean the allowance brought forward is not relevant.
What I mean is this. 370,000 – 8000 = 362,000.
362,000 * 0.05 = 18,100.
This is an increase in allowance because it’s higher than opening allowance.18,100 – 14,000 =4,100
This will be credited to allowance for receivables and debited to irrecoverable debt.
Which is 8000+4100=12,100.
I don’t understand it when you said the allowance brought forward is irrelevant.The question asks what allowance is needed at the end of the year.
It will be 5% of the receivables at the end of the year (after removing the irrecoverable debt).
If the question had asked for the expense in the income statement, then the opening balance on the allowance would have been relevant (because there is the expense of increasing it) but not in this question.
I can not understand why we should remove Y’s balance? isn’t 40% of Y’s debt our receivable?
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