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aijaz
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At 30 Jun 05, a company’s allowance for receivables was $39000.
At 30 Jun 06, trade receivables totalled $517000 & it was decided to write off debts totaling $37000 as irrecoverable.
It was also decided to adjust the allowance for receivables to 5% of the remaining trade receivables. What allowance for receivables should appear in the SOFP at 30 Jun 06? Ans: $ 15000I have solved as below but my answer is not tallying:
Cr Allowance for receivables 39000
Dr Receivables 517000
Cr Receivables 37000
Dr Irrecoverable & Doubt Debts expense 37000
General Allowance (5% of 480000): 24000
Dr Allowance for receivables 15000
Cr Irrecoverable & Doubt Debts expense 15000
Balance c/f on Allowance for Receivables 24000 which appears on SOFP on 30 Jun 06You have either typed the question incorrectly (or the answer) or there is a mistake in the book you are using. The correct answer to what you have typed is certainly not $15,000 !!
The allowance for receivables as 30 June 2006 = 5% x (517,000 – 37,000) = $24,000.
(This does mean reducing the existing allowance by $15,000, but that is not what the question is asking for)
Why are you doing all those debits and credits? They are not needed (and you certainly will not have time for them in the exam!!!). There is very little testing of debits and credits in Paper F3, and you will never be actually required to produce a t-account.
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