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Gordon’s receivables owe a total of $80,000 at the year end. These include $900 of long-overdue debts that might still be recoverable, but for which Gordon has created an allowance for receivables. During the year Gordon also wrote off an amount of $1582.
which of the following statements best describes Gordon’s position regarding receivables as at the year end.
A trade receivables of $80,000 a specific allowance of $900 and a bad debt of $1582
B trade receivables of $78 418, a specific allowance of $1582 and a bad debt of $900
C trade receivables of $80,000 and a specific allowance of $2482
D trade receivables of $78 418 and a specific allowance of $682My answer : net trade receivables is trade receivable – allowance for receivable – irrecoverable debt so its 80 000 – 900 – 1582 = 77 518. However none of the answers reflect my answer. Can you please explain what is happening?
I do not know where you found the question, but as you have typed it none of the answers are correct (and it is strange that there is not an answer in the same book anyway – you should be using a Revision Kit from one of the ACCA Approved Publishers).
The irrecoverable debt was written off during the year, and so the $80,000 is the balance on receivables after writing off the debt. $80,000 will therefore appear on the SOFP.
Also appearing separately on the SOFP will be the specific allowance of $900 (which will be subtracted from the balance on receivables).
On the SOPL will appear the expense of writing off the irrecoverable debt and of providing for the doubtful debt, so a total expense of $2,482.
Note also that we stopped referring to ‘bad debts’ many years ago. They are called ‘irrecoverable debts’ and will be called that in the exam.
so my answer is correct? we have to minus the total expense of 2482 from the total receivables of 80 000 ?
No, your answer is certainly not correct!!
I do not think. you have read my reply carefully enough.
The question says that the irrecoverable debt was written off during the year. Therefore the $80,000 balance at the end of the year is already after removing this debt. We do not therefore subtract it again!
I have a doubt
There Isa question where it is given contra payables and discount received so should we takethat in receivable ac?Contras and discounts are dealt with in the lectures on control accounts. They have nothing specifically to do with irrecoverable and doubtful debts.
An increase in allowances for receivables of $8,000 has been treated as a reduction in the allowance in the financial statement. Which of the following explains the resulting effects?
answer is C is Net profit is overstated by $16,000, receivables overstated by $16,000
why is the double effect? why not just $8,000?Imagine that before recording anything to do with the allowance, the profit was $20,000.
Treating the allowance as if it was a reduction means that the the profit has been increased by 8,000 and would be 28,000.
It should have been treated as an increase and this would have reduced the profit by 8,000 which would give a correct profit of 12,000.So at the moment the profit is 28,000 – 12,000 = 16,000 more than it should be.
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