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Receivable given in trial balance -256000
opening allowance -8000The trade receivables balance has been reviewed at the year end and the following adjustments are required:
(1)An irrecoverable debt of $6,000 is to be written off.
(2)The allowance for receivables needs to be adjusted to 2% of the remaining receivables.
this is how i solved the sum 8000(opening allowance ) – 6000(bad debts) = balance on receivable 2000
(receivable) 256000 – 6000(bad debt) = 250000*2% = 5000
there is already allowance of 2000 so only 3000 would hit profit and loss and so decrease profit and loss by 3000 right ?
if i am wrong please explain how to solve this sum?
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and workings.
The expense for irrecoverable debts and allowances in the SOPL is indeed $3,000.
However it is more sensibly calculated as a decrease in the allowance of 8,000 – 5,000 = $3,000 together with an expense for an irrecoverable debt of $6,000. So a net expense of 6,000 – 3,000 = $3,000.
This is all explained in 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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