- This topic has 3 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Dear Sir,
i am still quite confused over the Provision for doubtful debts or the Impairment of receivables meaning.
Provision for Bad debts or impairment on receivables means when an amount due from Debtor ageing for more than 3 months ? or need to check post-event period whether the debtor paid up?
If the Debtor still does not settle unpaid charges, we should make impairment on receivables, is it?
For example, financial year ended 30 Sep 2016, this Debtor had unpaid charges $50,000 due and no payment receive till 31 Dec 2016.
I would need to provide IMPAIRMENT ON RECEIVABLE for this Debtors, right?
If the Debtor had a payment pattern, say each time they only paid 10% of $50,000 since July 2016 to Sep 2016.End of 30 Sep 2016, there would be still unpaid of 70% of amount due.
Should i make provision for Impairment on receivables?
Which FRS standard should i follow?Thank you.
Ann, there’s no standard that covers specifically Allowances for Receivables (Provisions for Doubtful Debts)
The only real guidance that we have is that current assets are shown at the lower of their cost and net realisable value
You seem to believe that 3 months is a magic time period and that any debt older than 3 months should be the subject of an allowance / a provision
That’s simply not the case!
First of all you need to consider the details of any contract or arrangement that the Receivable has with the entity – it may be that there is an agreement for an extended credit period longer than 3 months – would you want to be making an allowance?
Second, imagine a Receivable that has a debt outstanding since mid-September and has not paid as at the year end but the directors KNOw that this Receivable is a good debt – they just tend to take a few weeks extra credit
And another Receivable that has a debt dating from mid-December but the directors KNOW that this one is in financial difficulties
You and your 3 month rule would make an allowance for the first and no allowance for the second!
The responsibility for determining the recoverability (or, more importantly, the non-recoverability) of Receivables lies with the directors of the company.
Subsequent events are certainly a relevant consideration as also is the contract with the Receivable and the strategy of the directors (extended credit may be offered as an incentive to attract new customers away from the competition)
I don’t know where you’ve picked up the idea of a 3 month credit period but it is mis-guided
OK?
Dear Sir,
Thanks for highlighting that i need to consider Good Debt cases and financial difficulties cases.
If the Debtor was announced publicly that liquidation in process, provision should be made?
For example, Borders Bookstore went into liquidation.Thank you.
- You must be logged in to reply to this topic.