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At 1 January 20×4, Tartar Co had total receivables of $380,000. A specific allowance of $20,000 had been made for a business customer, Drab. The general allowance for receivables was 2.5%. During the year, Drab went out of business owing Tartar Co $28,000, none of which is expected to be recovered.
At 31 December 20×4, Tartar had total receivables of $420,000. There were no specific allowances but the general allowance for receivables was increased to 3%.What is the charge in the statement of profit or loss for the year to 31 December for the allowance for receivables and irrecoverable debts?
Please do not simply set me test questions and expect an answer! You must have an answer in the same book in which you found the question, and so you should ask about whatever it is in the answer that you are not clear about and then I will help you.
The allowance at the start of the year was 20,000 + (2.5% x (380,000 – 20,000)) = 29,000.
The allowance required at the end of the year is 3% x 420,000 = $12,600
Therefore the allowance will be reduced by 29,000 – 12,600 = 16,400.Therefore the charge in the SOPL = 28,000 – 16,400 = 11,600
This is all explained in my free lectures. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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