ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments
Meridian Ltd has trade receivables of $800,000 and uses a provision matrix. Expected loss rates are: not overdue 0.5%, 1-30 days overdue 2%, over 30 days overdue 10%. Balances are: not overdue $500,000, 1-30 days $200,000, over 30 days $100,000. The existing allowance is $9,000. What is the charge to profit or loss for the year?
The required allowance from the matrix is $16,500 (2,500 + 4,000 + 10,000). Because $9,000 is already held, only the increase of $7,500 is charged to profit or loss for the year. Charging the whole $16,500 would double count the existing allowance.
- A$7,500Correct
- B$16,500
- C$9,000
- D$2,500
Explanation
Required allowance = 500,000×0.5% (2,500) + 200,000×2% (4,000) + 100,000×10% (10,000) = $16,500. Less the existing $9,000, the additional charge is $7,500. Charging $16,500 ignores the opening allowance.
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