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Do trade receivables fair value include subsequent year (for example 2013) legal fees to collect current year (for example 2012) trade receivables, if one contacts a lawyer to commence legal procedures in 2013? A provision will be made for the amount that should be received by the debtor in 2012 in the Financial Statements. Should one also include an accrual on 2013 legal fees?
Thank you.
Regards,
Michael
Hi – no I think is the safest answer. Even the engagement of the services of a debt collection agency or lawyer, there is no guarantee that the debt will be recovered. I think that, if you have reached the point where you are actively chasing the debt “through the proper channels” ie resorting to legal action, there must be so much doubt about the recoverability that prudence would dictate that you should provide in full for the debt and adjust next year when / if the money is received
Does that answer it?
Thank you for your support Mike Little. Yes. So the debtor amount will be considered all as a bad debt and an accrual is not provided for the legal fees as the legal proceedings are commenced in 2013.
Thank you.
Agreed – presumably we are not committed to any non-refundable legal fees as at the end of 2012. If that were the case, then the “obligation arising from some past event” would be the irrecoverable amount of legal fees resulting from the past event of engaging a firm of lawyers to do some debt collection for us. And in that case I suppose you could justify an accrual. But is it capable of reliable measurement? If it were a fixed fee, then yes. But if it’s chargeable on a hourly charge out rate, then no.
Hope that helps
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