At 31 December 20X5 a company’s receivables totalled $100,000 and an allowance for receivables of $12,500 had been brought forward from the year ended 31 December 20X4.
It was decided to write off debts totaling $9,500. The allowance for receivables was to be adjusted to the equivalent of 5% of the receivables.
What charge for receivables expense should appear in the company’s statement of profit or loss for the year ended 31 December 20X5?
Answer
| $ | |
| Closing allowance (100,000 – 9,500) x 5% | 4,525 |
| Opening allowance | 12,500 |
| Decrease in allowance | (7,975) |
| Irrecoverable debts written off | 9,500 |
| Charge | 1,525 |