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RECEIVABLE AND PAYABLE LEDGER

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › RECEIVABLE AND PAYABLE LEDGER

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • June 9, 2021 at 9:09 pm #624287
    shaunak22
    Participant
    • Topics: 217
    • Replies: 41
    • ☆☆☆

    In the year ended 30 September 20X8, Fauntleroy had sales of $7,000,000. The year?end
    receivables amounted to 5% of annual sales. At the year end, Fauntleroy’s specific allowance
    for receivables equated to 4% of receivables. He also identified that this amount was 20%
    higher than at the previous year end.

    During the year irrecoverable debts amounting to $3,200 were written off and debts
    amounting to $450 and previously written off were recovered.
    What was the irrecoverable debt expense for the year?

    A $5,083
    B $5,550
    C $5,583
    D $16,750

    THE ANSWER(A)
    Year?end receivables 5% × $7,000,000 = $350,000
    Year?end allowance for receivables 4% × $350,000 = $14,000
    Allowance at start of year 100/120 × $14,000 = $11,667
    Increase in allowance = $2,333

    *Irrecoverable debts expense account*

    Write off of irrecoverable debts 3,200 dr
    Increase in allowance 2,333 dr
    Recovery of irrecoverable debts 450 cr
    Statement of profit or loss (?) 5,083

    DOUBT
    If we had made an allowance of 14000 and the irrecoverable debts was 3200 shouldnt that 3200 be subtracted from that allowance so it shouldnt have any effect on pnl right and irrecoverable debt expense account right? should the answer be 2333(increase in allowance)-450(bad debts recovered) =1833

    why is 1833 wrong?

    June 10, 2021 at 7:33 am #624364
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51545
    • ☆☆☆☆☆

    You can subtract the irrecoverable debt from the allowance is you want (although it makes it messier).

    If you do then the balance on the allowance account becomes 11667 – 3200 = 8,467.

    Therefore the increase needed in the allowance becomes 14,000 – 8,467 = 5,533 and therefore the charge to the SOPL becomes 5,533 – 450 = 5,083.

    I do suggest that you watch my free lectures on irrecoverable debts and allowances. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.

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