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In BPP revision kit it says – the allowance for receivables is to be increased to the equivalent of 5% of trade receivables. The trade receivables are 900, irr debts are 150 previous year allowance is 40.
I did – 900-150 = 750
THis year allowance = 0.05 % x 750 = 37.5
Decrease in allowance is 2.5
TOTAL expense is 147.5
However what BPP did is as follows.
Rec as per trial balance 900
allowance required 900000×5%=45
allwoance oer trial balance =40
Irr debts written off 150
TOTAL irr expense 155
I think from whatever I learnt from your lectures the way bpp did is wrong
The question does not appear to be in the current edition of the BPP Revision Kit and so I cannot check the wording.
However almost certainly it will say that the 150 was written off during the year (or that it appears in the trial balance, which means it was written off during the year).
In which case the 900 will already be after removing the 150, so you don’t subtract it again when calculating the allowance.
Yes sir, it was from the trial balance. what does that mean though?
There can only be a balance on the irrecoverable debts account if the entry has already been made (and therefore the receivables have already been reduced).