ExpertHard2 marksMultiple Choice
ACCA · Question 14 · Recording transactions and events
Section A
At 1 January 20X8, Delta Merchants had an allowance for receivables of $4,500. During the year, a debt of $1,200 was written off as irrecoverable. At 31 December 20X8, total trade receivables were $85,000. Delta wishes to maintain an allowance for receivables of 5% of the year-end balance.
What is the charge to the statement of profit or loss for receivables expense for the year ended 31 December 20X8?
Section A
At 1 January 20X8, Delta Merchants had an allowance for receivables of $4,500. During the year, a debt of $1,200 was written off as irrecoverable. At 31 December 20X8, total trade receivables were $85,000. Delta wishes to maintain an allowance for receivables of 5% of the year-end balance.
What is the charge to the statement of profit or loss for receivables expense for the year ended 31 December 20X8?
Answer options:
A.
$4,250
B.
$950
C.
$1,450
D.
$1,200
How to approach this question
Calculate the required closing allowance. Compare it to the opening allowance to find the increase/decrease. Combine this movement with the irrecoverable debts written off during the year to find the total P&L charge.
Full Answer
B.$950✓ Correct
Required closing allowance = 5% of $85,000 = $4,250. Opening allowance was $4,500. This is a decrease in the allowance of $250, which is a credit (income) to the P&L. The irrecoverable debt written off is an expense of $1,200. Net expense to P&L = $1,200 (expense) - $250 (income) = $950.
Common mistakes
Forgetting to net the change in the allowance against the written-off debt, or treating a decrease in the allowance as an expense.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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