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Apple has her own business selling dolls to stores.At 30th june 2013 she has a balance on her trade receivables of 62,900.
A balance of $2000 is due from X co is considered irrecoverable and is to be written off. Y co was in financial difficulty and Apple wishes to provide an allowance for 60% of their balance of $1600.She has also decided to make a general allowance for receivables of 10% of her remaining trade receivables.
what is the allowance for receivables in her S.F.P at 30th june 2013?
The correct answer is $6890
i dont understand why we have to deduct 1600 from 60900 and then again deduct 960 (1600*60%) to find the general allowance.
shouldnt we only deduct the 960?
The general allowance is to be 10% of the ‘remaining receivables’. Since Y’s debt has been dealt with (even though only 60% is to be allowed) we do not need to have any more allowance for it.
what do you mean by “do not need to have any more allowance for it” then why do we have to deduct 1600 and again 960.
if we do not need to have allowance then deducting only the 1600 is enough right??We do not deduct 960!
The specific allowance is 960.
The general allowance is 10% x (62900 – 2000 – 1600) = 5930So the total allowance is 5930 + 960 = 6890
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