ExpertHard2 marksMultiple Choice
ACCA · Question 15 · Receivables and Allowances
At 1 January 20X8, TradeCorp had an allowance for receivables of $12,000. At 31 December 20X8, total trade receivables were $450,000. The directors wish to write off an irrecoverable debt of $10,000 and then adjust the allowance for receivables to 5% of the remaining trade receivables balance. What is the total charge to the statement of profit or loss for receivables expense for the year ended 31 December 20X8?
At 1 January 20X8, TradeCorp had an allowance for receivables of $12,000. At 31 December 20X8, total trade receivables were $450,000. The directors wish to write off an irrecoverable debt of $10,000 and then adjust the allowance for receivables to 5% of the remaining trade receivables balance. What is the total charge to the statement of profit or loss for receivables expense for the year ended 31 December 20X8?
Answer options:
A.
$10,000
B.
$22,000
C.
$20,000
D.
$32,000
How to approach this question
First, deduct the irrecoverable debt from total receivables. Second, calculate the new required allowance. Third, find the movement in the allowance. Finally, add the write-off and the movement together.
Full Answer
C.$20,000✓ Correct
1. Write off the irrecoverable debt: Expense = $10,000. Receivables balance becomes $450,000 - $10,000 = $440,000.
2. Calculate required closing allowance: 5% of $440,000 = $22,000.
3. Calculate movement in allowance: Closing allowance ($22,000) - Opening allowance ($12,000) = $10,000 increase (Expense).
4. Total charge to P&L = Irrecoverable debt ($10,000) + Increase in allowance ($10,000) = $20,000.
Common mistakes
Calculating the 5% allowance on the $450,000 before deducting the $10,000 write-off, or charging the full new allowance ($22,000) to the P&L instead of just the movement.
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