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Hi sir,
The answer of question 11.8 is D, but isn’t tax an accrual rather than payables? Thank you!!
Sir, I’m also confused by answer of question 11.13 in BPP. I’ve read your reply to the same question before, but I still couldn’t understand:
In the previous year, we debit irrecoverable debt expense a/c and credit allowance for receivables a/c, as a result, the expense is included in last year’s SOPL. However, if the answer is (1000-850)+500, it means that we put the $100 in this year’s SOPL again, and it doesn’t make sense. Because we should only debit allowance for receivables a/c and credit receivables a/c this year and there’s nothing to do with irrecoverable debt expense. Could you please kindly explain..:(
Thank you so much!!
First question:
I do not know which edition of the BPP Revision Kit you are using, but question 11.8 in the current edition is nothing to do with tax.
Second question:
We are not charging the $100 twice.
You can get the same result in two ways.
The easiest and most sensible way is to simply charge the $500 irrecoverable debt, and then increase the allowance by the difference between the required $1000 and the existing balance of $850 i.e. $150. This gives a total expense of $650.
The alternative is for the irrecoverable debt of $500, reduce the existing allowance by $100 (the amount already included) and just charge as an expense the remaining $400.
This means than the balance on the allowance account is now only $750. To increase this to $1000 means having an expense of $250.
So the total expense is $400 + 250 = $650 (as before).Have you actually watched my free lectures on irrecoverable debts and allowances, because I do explain this point?
Anything owing to others is a payable. If they are owing tax then it is a payable.
Hi sir,
I watched your lecture again regarding this point. However I still need some help to clarify:
Now I totally get your mean by ‘not charging $100 twice’. If we do in the second way, is last year’s SOPL also effected? I mean now we remove the expense and allowance from last year, so actually last year’s expense should be less 🙁
Not at all. Last years expense is not affected in the slightest.
Last years expense include the cost of the debt becoming doubtful and that is fine.
This year we have irrecoverable and we still want to increase the allowance to $1,000 regardless of how we go about it.
Whichever of the two ways you want to deal with it, the expense this year is the same and is correct.
WOW.. I finally understand now
Thank you so much for your time and patience, sir!! 🙂
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