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ACCA Applied Knowledge · Financial Accounting · Statement of financial position

At 31 December, Darwin Co has a trade receivables ledger balance of $80,000. It has decided to write off a debt of $2,000 as irrecoverable and to hold an allowance for receivables of 5% of the remaining receivables. The opening allowance was $3,000. What is the total charge to profit or loss for the year for irrecoverable debts and allowance movement, and the net receivables figure in the statement of financial position?

After writing off $2,000, receivables are $78,000. A 5% allowance is $3,900, giving net receivables of $74,100. The allowance rises by $900 from $3,000, so the profit or loss charge is $2,000 plus $900, which equals $2,900.

  1. ACharge $3,900; net receivables $74,100Correct
  2. BCharge $2,900; net receivables $74,100
  3. CCharge $3,900; net receivables $75,900
  4. DCharge $2,900; net receivables $75,900

Explanation

Receivables after write-off = 80,000 - 2,000 = 78,000. Closing allowance = 5% x 78,000 = 3,900. Net receivables = 78,000 - 3,900 = 74,100. The allowance increases by 3,900 - 3,000 = 900, so the total charge is 2,000 + 900 = 2,900. Hence the charge is $2,900, not $3,900.

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