ACCA F3 Bad Debt
At 1 January 2005 a company had an allowance for receivables of $10,000.
At 31 December 2005 the company’s trade receivables were $900,000.
It was decided:
(a) To write off debts totalling $12,000 as irrecoverable;
(b) To adjust the allowance for receivables to the equivalent of 5% of the remaining receivables based on past experience.
What figure should appear in the company’s income statement for the total of debts written off as irrecoverable and the movement in the allowance for receivables for the year ended 31 December 2005?
Suggested Solution:
| Trade Receivables | 900,000 |
| Less Bad Debt | 12,000 |
| Net Trade Receivables Balance | 888,000 |
| New Allowance at 5% | 44,400 |
| Income statement (Bad debt plus additional allowance | 46,400 |