Allowance/ receivable

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May 13, 2019 at 11:36 am #515761
Ha
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Hi Mr. John . Can you pls help me with this one
The sale revenue of A was 2 mik and its receivable were 5% of sales . A wishes to have a specific allowance for receivable of 4000$ , which would make the allowance one third higher than the current allowance . How would the profit for the period be affected by the chance in allowance .
My answer for this one is 4000* 1/3= 1333 ( profit is reduced ) and it is wrong
I have read the answer and it s shown : current allowance is 4000* 3/4 =1000$
Can you pls explain why it is 3/4 here . Many Thanks
May 13, 2019 at 1:35 pm #515770
John Moffat
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Use a little algebra:
If the current allowance is X, then the allowance they want will be X + 1/3X which is equal to 4/3X.
They want the allowance to be 4,000. Therefore 4/3X = 4,000, so X = 3/4 x 4,000 = 3,000.
Therefore the increase needed is 4,000 – 3,000 = 1,000
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