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During the audit a key customer, Pirlo Co, with a receivables balance at the year end of $285,000, has just notified Cannavaro that they are experiencing cash flow difficulties, meaning they are unable to make any payments for the foreseeable future. The finance directors of Cannavaro has notified the auditor that he will write this balance off as an irrecoverable debt in the financial statements for the year ended 31 December 20X5 (next year FS)
PBT – 3.8m and revenue 11.2mQuestion- Which of the following correctly summarises the effect of o/s bal with Pirlo co?
(A) Material- Profit is overstated
(B) Material- Going concern basis is in doubt
Answer is option ADear sir, I get it why it is option A but isnt B right too? Since pirlo co is a key customer who is experiencing cash flow difficulties?
Kindly tell as soon as possible as im having my exams day after tom..thank youThe loss of this one customer does not mean that there are significant doubts about the going concern of Cannavaro – it has a huge profit – it’s not like writing off the debt is putting the company into a loss-making situation (for example).
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