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Hi Please help!
The trial balance is EH at 31st October 20×7 showed trade receivables of $82,000 before any adjustments.
On 1st Nov 20×7 EH discovered that one of its customers has ceased trading and was very unlikely to pay any of its outstanding balance of $12250. The remaining trade receivables had suffered a 3% impairment at 31st October 20×7.What is the balance of trade receivable @ 31st October 20×7?
A) $66,202
B)$67,290
C)$67657
D)$79540I am tempted to pick D- $79540 because the discovery of the irrecoverable debt was after reporting date of 31st October? Should I factor in the irrecoverable debt because it is “very unlikely” that the outstanding balance will be paid, so we have to make an adjustment in the books?In accordance to IAS 10- Events after reporting date? Therefore the answer will be C- $67657
The reason I didnt initally is because the question does not say anything about the customer being a major customer…
I don’t know where you found this question, but it is a very poor question for two reasons.
Firstly, we don’t talk about impairment – we call it an allowance for receivables.
Secondly, the trial balance figure for receivables will only have the irrecoverable debt removed. The allowances is a separate balance. On the SOFP we show net receivables, which is receivables less the allowance.The balance on the receivables account will be 82,000 – 12,250 = 69,750
(the fact is was discovered one day later is irrelevant – the account will still be adjusted)The balance on the allowance account will be 3% x 69750 = 2092.5
These will be the correct balances in the trial balance after adjusting.
The net receivables on the SOFP will be 69750 – 2092.5 = 67657.5
(The free lectures on irrecoverable and doubtful debts will help you. Our lectures are a complete course covering everything you need to be able to pass F3 well)
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