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At 30 June 20X5 a company’s allowance for receivables was $39,000. At 30 June 20X6 trade receivables totalled $517,000. It was decided to write off debts totalling $37,000 and to adjust the allowance for receivables to the equivalent of 5 percent of the trade receivables based on past events.
What figure should appear in the income statement for the year ended 30 June 20X6 for these items?
The answer is 15,000
The allowance for receivable for 2006 is: (517,000 – 37,000)* 5% = 24,000
The decrease in allowance (39,000 – 24,000) will increase the profit.
Warm regards,
Tammi
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