At 30 September 20X4 a company’s allowance for receivables amounted to $9,500, which was equivalent to five per cent of the receivables at that date.
At 30 September 20X5 receivables totaled $217,000. It was decided to write off $7,000 of debts as irrecoverable. The allowance for receivables required was to be the equivalent of five per cent of receivables.
What should be the charge in the statement of profit or loss for the year ended 30 September 20X5 for receivables expense ?
Answer
| $ | |
| Irrecoverable debt written off | 7,000 |
| Increase in allowance (217,000 – 7,000 ) x 5% – 9,500) | 1,000 |
| 8,000 |