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At 30 April 2005, ABC Ltd has a receivables balance of $60,000 and an allowance for receivables of $900. Following a review of receivables, he wishes to write off an irrecoverable debt of $5,000 and adjust his allowance to 5% of receivables.
Recovery from Good and previously written off is 5,000 and 2,000 respectively. What will be the adjusted balance of the allowance for
receivables?After writing off the debt the total receivables will be 60,000-5,000 = 55,000.
After recovery from Good (I assume this means Good pays ABC 5,000), receivables will amount to 50,000.
The recovery of the previously written off debt will not affect receivables: that amount was no longer there.
5% of 50,000 = 2,500 and that is the required allowance for receivables.
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