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ACCA Applied Knowledge · Financial Accounting · Receivables and payables

Delta Co has trade receivables of $120,000 before any adjustments. It then learns that a customer owing $8,000 has gone into liquidation and the debt is irrecoverable. Delta also holds a general allowance of 4% of remaining receivables; the opening allowance was $4,000. What is the total charge to profit or loss for irrecoverable debts and allowance movement for the year?

The total charge is $8,480. The $8,000 bad debt is written off first, leaving $112,000 of receivables. The 4% allowance is then $4,480, which is $480 above the opening $4,000, and this increase is added to the write-off.

  1. A$8,480Correct
  2. B$8,000
  3. C$4,480
  4. D$12,480

Explanation

Write off $8,000, leaving $112,000 of receivables. Closing allowance is 4% x $112,000 = $4,480. Increase over the opening $4,000 is $480. Total charge is $8,000 + $480 = $8,480. Charging $12,480 wrongly treats the full allowance as an expense, ignoring the opening balance.

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