At the start of the year, the allowance for receivables was $5,000. During the year, an irrecoverable debt of $2,000 was written off. At the year-end, trade receivables are $100,000, and management decides a 4% allowance is required. What is the total charge to the statement of profit or loss for receivables expense?

Answer options:

$2,000 expense

$1,000 expense

$1,000 credit (reduction in expense)

$1,000 expense

How to approach this question

Combine the irrecoverable debt written off with the increase or decrease in the allowance for receivables.

Full Answer

D.$1,000 expense✓ Correct

1. Irrecoverable debt written off = $2,000 (Debit P&L). 2. Required closing allowance = 4% * $100,000 = $4,000. 3. Opening allowance = $5,000. 4. Decrease in allowance = $5,000 - $4,000 = $1,000 (Credit P&L). 5. Net charge to P&L = $2,000 (Dr) - $1,000 (Cr) = $1,000 net expense.

Common mistakes

Adding the closing allowance to the write-off, or ignoring the opening allowance.

Question 15 All questions Question 17

Practice the full ACCA FA — Financial Accounting Practice Exam 2

65 questions · hints · full answers · grading

More questions from this exam

Q01BioGenix Ltd, a biotech startup, is deciding whether to disclose a highly uncertain contingent li...Easy Q02Which of the following bodies is primarily responsible for issuing International Financial Report...Easy Q03Which of the following are the primary responsibilities of the directors of a limited liability c...Medium Q04Titanium Forge Co, a heavy manufacturing firm, recently incurred the following costs: 1. $50,000 ...Medium Q05A company makes a 1 for 4 bonus issue of shares. The nominal value of the shares is $1. The compa...Medium

View all 65 questions →