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Apple has her own business selling dolls to stores. At 30 June 2013, she has a balance on her trade receivables of 62900. A balance of $2000 due from X co is considered irrecoverable and is to be written off. Y co was in financial difficulty and Apple wishes to provide an for allowance for 60% of their balance of $1600. She has also decided to make a general allowance for receivables of 10% of her remaining trade receivables. What is the allowance for receivables in her financial position at 30 june 2013?
In the above question, when we calculate general allowance, why do we subtract specific allowance of $1600 instead of specific allowance of $960
The fact that they consider 60% of Y’s balance to be a problem means that they consider the remaining 40% to be OK. They will not therefore make an allowance for the remaining 40% of Y’s balance because that would effectively mean that they were regarding 70% of the total to be a problem 🙂
The general allowance will only ever be calculated on those debts for which they are not making a specific allowance.
(In future please ask in the Ask the Tutor Forum if you want for me to answer. This forum is for students to help each other 🙂 )
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