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ACCA Applied Knowledge · Financial Accounting · Disclosure notes

Vale Co has a 31 December 20X5 year end; financial statements were authorised on 28 February 20X6. Trade receivables were $400,000 before any adjustments, with an allowance of $20,000. On 15 January 20X6 a customer owing $30,000 went into liquidation, and nothing is expected to be recovered; the customer was not included in the allowance. On 20 February 20X6 Vale's directors announced a plan to restructure, and a fire on 25 February destroyed inventory of $80,000. What is the net receivables figure to be reported at 31 December 20X5?

Net receivables are $350,000. Only the customer's liquidation is an adjusting event, so $30,000 is written off, giving $370,000 gross, and the $20,000 allowance is then deducted. The restructuring plan and fire do not affect receivables.

  1. A$350,000Correct
  2. B$380,000
  3. C$370,000
  4. D$300,000

Explanation

Only the liquidation is adjusting: write off $30,000. Receivables become $400,000 − $30,000 = $370,000, less the existing allowance of $20,000 gives $350,000. The restructuring announcement and fire are non-adjusting. Option $370,000 forgets the allowance; $380,000 deducts the write-off from net figure incorrectly in reverse.

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