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Greetings,
It’s an MCQ question and my concept is a bit hazy.Here we go;
Q: Before any end-of-year adjustments had been made, the trial balance of a business at 31 May 2011 included the following.
trade receivables 13 400dr
provision for doubtful debts 500crAt 31 May 2011, it was found that trade receivables included a bad debt of $650. It was decided to adjust the provision for doubtful debts to 4% of trade receivables. A debt of $420, which had been written off as bad in January 2010 was recovered in January 2011.
what was the effect of these events on the income statement for the year ended 31 May 2011?
A. Debit $384 B.Debit $410
C.Credit $430 D. Credit $456Thanks and regards,
Either you have mistyped something, or there is a mistake in the question itself. Because none of the choices available are correct!
The amount in the Statement of profit and loss is:
Irrecoverable debts written off 650
Irrecoverable debt recovered (420)
Increase in allowance for
doubtful debts ((4% x (13400 – 650) – 500) 10Total expense = 240 (a debit because it is an expense)
No, I have not mistyped the question. There is a mistake in the question which left me confused. However, bad debts of 420 were recovered earlier in January 2011 and now new bad debts of 650 arose at the end of the year at 31 May 2011. then why did you calculate the difference between both bad debts? I mean wouldn’t 240 be credited in the income statement. As we 10 and 650 (new bad debt) will be on the debit side of the profit and loss account while 420 would be on the credit side of the profit and loss account, wouldn’t we add 240 on the credit side in the P&L account to balance it?
Thank you very much for you assistance.
The irrecoverable debts are an expense and the irrecoverable debts recovered are a ‘negative expense’. We show the net of all the items as an expense.
(The reason we show irrecoverable debts recovered as a negative expense is because they were recorded as an expense when they were originally written off)With regard to the specific question you asked, surely there is a printed answer in the same book in which you found the question (with the workings, which should help identify their misprint). If not, then you should be using different books!!! The Revision Kits published by the ACCA approved publishers contain exam standard questions and do provide answers with workings.
Do be careful of your terminology. We stopped using the words ‘bad debts’ and ‘provision for doubtful debts’ many years ago. It is now ‘irrecoverable debts’ and ‘allowance for receivables’ (and it will be those words in the exam) 🙂
I do suggest that you watch our free lectures on this. Our free lectures are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
Hi!
32.12 Panther owns her own business selling Gladiator dolls to department stores. At 30 June 20X2 she had the following balances in her books:
Trade receivables 31,450
Allowance for receivables (General) (450)
(as at 1 July 20X1) 31,000A balance of $1,000 due from Selfrodges Co is considered irrecoverable and is to be written off. Horrids Co was in financial difficulty and Panther wished to allow for 60% of their balance of $800. She also decided to make a general allowance of 10% on her remaining trade receivables. What was the allowance for receivables in her statement of financial position at 30 June 20X2?
When it comes to statement of allowances I would do:
Specific: 800*60% = 480
General: (30,450 – 480)*10% = 2,997
The sum up is the total allowances.For some reason I dont get, the solution is to deduct 800 from receivables to find the general allowance and not 480. May you please give an insight on this?
The reason is that if they are specifically providing for 60% then they must think that the other 40% is ‘certain’. So they don’t need to have an allowance for the other 40% as well 🙂
Hi Sir,
It’s an MCQ question again, please explain.
A trial balance at 30 April 2003, before making end of year adjustments showed:
Trade debtors Dr. $17800
Allowance for doubtful debts CR.$580At 30 April 2003, it was decided to write off a bad debt of $800 and to make a provision for doubtful debts of 2% of trade debtors. During the year, an amount of $200 was received from a customer relating to a debt that was written off in the year ended 30 April 2002.
What was the total bad and doubtful debts expense for the year ended 30 April 2003?
A $360
B $560
C $940
D $1140The correct answer is $360 however with my calculations I’m getting $340. Kindly please explain
I don’t know where you found this question, but it is obviously rather out of date – bad debts have been called irrecoverable debts for many years now, and we do not refer to a provision for doubtful debts – it is called an allowance for receivables! I do suggest that you use a current edition of a Revision Kit from one of the ACCA approved publishers.
(I have told you this before!!!)The expense in the Statement of Profit or Loss will be:
Cost of the irrecoverable debt $800; less irrecoverable debt recovered $200; less decrease in the allowance: 580 – (2% x (17800 – 800) = $240
Total = 800 – 200 – 240 = $360
Thank you! and Sorry sir actually It’s a question from very old past papers that I found online, that is the reason the wordings are those from previous years. Although, as you told me I use the wordings that are supposed to be used now, viz. Irrecoverable debts and allowance for receivables.
No problem (although be careful using very old past papers, because there have been changes to the syllabus).
Much better is to buy a current edition of a Revision Kit from one of the ACCA approved publishers.When it will be given in NOTES about irrecoverable debts, then I have to subtract it from receivables but if they are only in trial balance, then I don’t have to subtract.
Right?
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