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- This topic has 7 replies, 4 voices, and was last updated 5 years ago by John Moffat.
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- September 22, 2014 at 5:40 am #195821
I just tried a mock exam of F3, and there was a question about allowance for receivables I failed to answer correctly. Could you, please point out where I am wrong in my arguments?
Q: At 30 June 2005, a company’s allowance for receivables was $39,000.
At 30 June 2006, trade receivables totalled $517,000 and it was decided to write of debts totalling $37,000 as irrecoverable. It was also decided to adjust the allowance for receivables to 5% of the remaining trade receivables. What expense should appear in the Statement of profit or loss for the year ended 30 June 2006?1. Getting rid of irrecoverable debts 517,000 – 37,000 = $480,000
2. Calculating allowance for receivables (5% of the remaining trade receivables) 480,000 * 5% = $24,000
3. As the opening allowance for receivables was $39,000 (credit, I assume) and the closing allowance for receivables should be $24,000 as we estimated, then we should debit allowance for receivables for 39,000 – 24,000 = $15,000.
So, I assume, that figure, $15,000 should be credited in the I/S? Yet, the right answer was $22,000, according to the revision.Help me, please π
September 22, 2014 at 6:34 am #195831The expense in the Statement of profit or loss is:
Cost of writing off the irrecoverables: 37,000
Saving by reducing allowance: 15,000So the net expense is 37,000 – 15,000 = $22,000
September 23, 2014 at 4:52 am #195988I see now, thank you very much, Mr Moffat !!!
September 23, 2014 at 7:00 am #196001You are welcome π
December 2, 2014 at 11:52 am #215945Hi John,
I was just doing the same Mock exam and this question was changed to “What allowance for receivables should appear in the Statement of Profit or Loss at 30 June 2006?”. Is the question not wrong because Allowance for Receivables doesn’t appear on the SPL?
December 2, 2014 at 1:38 pm #216002Ooops!
There are two similar questions. One asks for the expense (which is the one originally asked about) and the other asks for the amount of the allowance.
For this second one, you are correct – it should have asked what allowance would appear in the SOFP.
I have now corrected it – sorry πMarch 23, 2019 at 2:27 pm #510165hey i didnt understand how u did it?if u please could explain it?where did u get this formula?
March 23, 2019 at 4:24 pm #510175I have no idea what formula you are asking about – there is no formula. FA is not a formula exam!!
Do watch 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 pass the exam well.
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