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Pls can someone help me out with this question. I am stuck on it.
Q. At the start of the year Joe had an allowance of $700 against receivables.
During the year $450 of this amount went bad and $150 was received; the balance remained unpaid at the year end.
At the year end it was decided to provide for a new debt of $240.
What was the total charge to the statement of profit or loss for irrecoverable debts and allowances for the year?
A $450
B $90
C $300
D $690
If someone can let me know the answer to this question and how they arrived at it.
Thanks
If you look here you’ll see an old version of the same question https://opentuition.com/topic/irrecoverable-debts-and-allowances-2/
The only difference is that there is not another $170 going bad – so the answer would be B $90.
Total expense = Any debts written off during the year +/- allowance expense (or write back)
The write off we know is $450.
For the allowance expense, it may help to think of a T a/c:
Opening allowance +/- expense/write-back = Closing allowance
Op bal is $700. Cl bal is 700 – 450 – 150 + 240 = $340
i.e. the allowance is reduced by $360 – so this is a write-back (credit) to profit or loss.
The correct answer is therefore B $90 ($450 – $360).
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