Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Irrevocable debts
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John Moffat.
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- March 15, 2016 at 7:02 pm #306524
Question:
“Panther owns her own business selling Gladiator dolls to department stores. At 30 June 20X2 she had the following balances in her books:Trade receivables $31,450
Allowance for receivables (General) (as at 1 July 20X1) $(450)A balance of $1,000 due from Selfrodges Co is considered irrecoverable and is to be written off. Horrids Co was in financial difficulty and Panther wished to allow for 60% of their balance of $800. She also decided to make a general allowance of 10% on her remaining trade receivables. What was the allowance for receivables in her statement of financial position at 30 June 20X2?”
Answers of the book:
“General allowance =10%*((Trade receivables – irrevocable debts) – Horrids) = 10%*((31.45 – 1) – 0.8) = 2.965
Specific allowance = 0.8 * 60% = 0.48
Total allowance = 3.445”I don’t know why they could calculate the “general allowance” by the formular above, and this is my answer:
“General allowance = 10%*((Trade receivables – irrevocable debts) – specific allowance of Horrids) = 10%*((31.45 – 1) – 0.8 * 60%) = 2.997
Specific allowance = 0.8 * 60% = 0.48
Total allowance = 3.477”Please tell me why BPP Revision kit used this method to find out the answer, thank you so much.
March 16, 2016 at 6:35 am #306557If they are allowing for 60% of Horrid’s debt, then presumably they think that the other 40% is no problem, therefore they will not want 10% of that as well – it would be allowing for it twice 🙂
(By the way, the word is ‘irrecoverable’ not ‘irrevocable’ 🙂 )
March 16, 2016 at 11:42 am #306645Thank you, I got it. The key point here is to avoid double record.
March 16, 2016 at 12:34 pm #306656Irrecoverable Debts
May you please clarify for me why answer to Test question # 2 is $139.2 instead of $98.40
March 16, 2016 at 12:36 pm #306657May I help you, I dont understand your question
March 16, 2016 at 12:45 pm #306659at 31 Dec 2005 the ledger of X Co. included a $5.376 allowance for receivables. During the year ended 31 Dec 2006 irrecoverable debts of $2040 were written off . Receivables balance at 31 Dec 2006 totaled $173760 and the company wished to carry forward a general allowance of 2%.
The total charge for irrecoverable debts and change in allowance for receivables in the 2006 statement of Profit or Loss isA $98.4
B $139.2
C $3.904.8
D $5.515.2March 16, 2016 at 1:02 pm #306662For your question,
Total charge to P&L = 2040 + (173760 * 0.02 – 5376) = $139.2Because:
Allowance for receivable for the year X6 = 173760 * 0.02
The receivables balance at 31 Dec 2006 is “Net receivables after deducting irrecoverable debts occurred during the fiscal year”March 16, 2016 at 3:04 pm #306678harry1094 is correct (but please don’t answer questions in this forum because it is Ask the Tutor (although do help people in the other forum 🙂 )
March 16, 2016 at 3:17 pm #306681Yep, I got it, I dont make a same mistake again in the future 😉
March 16, 2016 at 3:20 pm #306683No problem 🙂
March 17, 2016 at 5:37 am #306723THANKS VERY MUCH
March 17, 2016 at 6:44 am #306750You are welcome 🙂
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