- This topic has 2 replies, 2 voices, and was last updated 4 years ago by
.
- Posts
At the end of its first trading period after commencing business, Khan & Co has a receivables balance of $500,000. It wishes to provide a specific allowance on a debt of $10,000. (The customer that owes this $10,000 is in severe financial difficulty, it is unlikely any of this $10,000 will be recovered). Khan & Co also wishes to set up a general allowance of 2%. What is the charge to the statement of profit or loss?
A $19,800
B $20,000
C $10,000
D $9,800
sir i solve this question that that the closing allowance is 500000-10000=490000*2%=9800 so there is decrease in allownace of 200 so the irrecoverable debts is 10000 minus the decrease in allowance is 10000-200=9800.sir please explainThe general allowance is 9,800 and the specific allowance is 10,000. So the total allowance required at the end of the year is 19,800.
There was no allowance at the start of the year (because this is the first year of trading) and therefore the expense in the SOPL is the full 19,800.
I explain all of this (and what is meant by the specific and general allowances) in my free lectures on irrecoverable and doubtful debts.
The lectures are a complete free course for Paper FA and cover everything needed to be able to pas the exam well.
- You must be logged in to reply to this topic.