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Trade Receivable & Liquidation

Mmariesopp14y ago
I have an adjustment that I am really struggling with as follows:

Uzielli recognised a trade receivable on 1 November 20X6 due from its customer Thompson at $51,542,000 payable in three annual instalments of $20,000,000 commencing 31 October 20X7 discounted at a market rate of interest adjusted to reflect the risks to Thompson of 8%.
During November 20X8 (before Uzielli’s financial statements were authorised for issue),Thompson entered into liquidation and the liquidator notified Uzielli the creditors would receive 80% of amounts owed on original payment dates. An appropriate market rate of interest (adjusted as above) was 9% at the year end.

Would appreciate any help as I am really stuck.

Thanks

Marie
MikeLittleMikeLittleTutor14y ago#1
If I'm correct, I believe that Uzielli should write down the debt to 14,678,900.

That's calculated as 20,000,000 ( the last of the three instalments ) discounted at 9% to give 18,348,624.

Multiply by 80% as the amount thought to be recoverable gives us 14,678,900. At the year end, it would be included in the draft financial statements at 20,000,000 discounted for 1 year at 8% = 18,518,518

This therefore needs a write-down of 3,939,618 as a result of a subsequent event which has fixed with greater certainty an amount or estimate within the financial statements ie the fair value of the recoverability of an account receivable.

But I may be wrong!
MikeLittleMikeLittleTutor14y ago#2
sorry, 3,839,618
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