Irrecoverable debts and allowance

SSuleyman8y ago

At january 20X1,there was an allowance for receivables of 3000$,during the year,1000$ of debts were written off as irrecoverable,and 800$ of debts previously written off were recovered. At 31 December 20X1, it was decided to adjust the allowance for receivables to 5% of receivables which are 20000$ what is the total receivables expense for the year Sir,l consider that closing allowance =(20000-200)*5%=990 Opening allowance=3000 ?f the amount recovered exists ,so the total receivables expense should be 200$+2010$=2010$ ie:l consider that the answer is credit 2810$(800$ recovered+2010$ decrease in allowance ) But the answer is given “1800$ credit” I can not understand why the answer is so. For example 800$ was recovered ,yes l undersood that it is 800$ credit but why is 1000$ taken ?in fact ,2010$ should be taken

John MoffatTutor8y ago#1

First, the question says that the debts written off and the debts recovered happened during the year. So the receivables at the end of the year of 20,000 are after dealing with them. Therefore the allowance needed at the end of the year is 5% x 20,000 = 1,000. The allowance is reducing by 2,000, so that is income. The irrecoverable debts were an expense of 1,000 The debts received was income of 800. Therefore the net result is income of 2,000 - 1,000 + 800 = 1,800. Again, have you watched my free lectures?

SSuleyman8y ago#2

Yes,I have wathced And Sir,l have notice that,closing allowance is calculated with(trade receivable in the end of year less written off irrecoveravle debts)*X% And here was not to be followed?? Even,l have seen in practice tests of revision kit (Bpp)-closing allowance is calculated so But if we calculate so,the answer is 1950$ And if we take into consideration "round" ?t is possible to take the answer 2000$? Here: ”during the year” expression means from 1 january 20X1 to 31 december 20X1??

SSuleyman8y ago#3

And irrecoverable debt expense of 1000$ belongs to 20X0 fnancial year? but not 20X1??

John MoffatTutor8y ago#4

It depends whether the irrecoverable debt was dealt with during the year (as this question says) or whether you are given the receivables balance and then it was decided to write off the irrecoverable. It depends on the wording of the question. The expense is for this year, regardless of whether the debt was written off during the year or at the end of the year.

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