ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income
Marlow Co has trade receivables of $84,000 before adjustments. It decides to write off an irrecoverable debt of $4,000 and to have an allowance for receivables of 5% of the remaining receivables. The existing allowance brought forward is $2,500. What is the total charge to profit or loss for receivables expenses for the year?
The total charge is $5,500. The $4,000 irrecoverable debt is written off, leaving receivables of $80,000, so the allowance should be $4,000. Since the allowance was $2,500, the increase of $1,500 is added to the write-off to give $5,500 expensed in profit or loss.
- A$5,500Correct
- B$4,000
- C$1,500
- D$6,500
Explanation
After write-off, receivables are 80,000, so the required allowance is 5% x 80,000 = 4,000. The increase from 2,500 is 1,500. Total charge = irrecoverable debt 4,000 + allowance increase 1,500 = $5,500. $1,500 omits the write-off.
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