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Dear Tutor,
Can you please explain the following question?On 30 June 20X7 the balance on company’s receivables control account was $39000 and its allowance for receivables $850. During the course of the audit many points arose and are shown as below:
$
Irrecoverable Debt not written off – 560
Specific allowance no longer requ’d – 280
(rec’ble paid on 31 Jan 20X7)
Irrecoverable debt recovered not entered in the books – 260If the rec’ble allowance is to be 2.5% of rec’bles what is the net charge to the income statement for irrecoverable debts?
A. $691
B. $411
C. $961
D. $671Answer is B.
Please explain. I am appearing for CBE next week…Really worried 🙁
Is there any way I can attach screen shot of the question – this will save me writing the whole question?Thanks.
Hi let me explain how we come to $411.
PL charge consists of
1) +560 (expense bad-debts)
2) -260 (gain on recovered bad-bedt)
3) -280 (gain on reduce of specific allowance for receivables)
4) +391 (expense on increase of general allowance for receivables) (note #1)NOTE # 1
RECEIVABLES BALANCE 39 000 $
LESS BAD-DEBT -560$ (Irrecoverable Debt not written off)
CORRECT RECEIVABLES 38440 $ x 2,5% = 961$ diff with current GENERAL allowance (850-280) = 570, i.e. diff =391$
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