ExpertMedium2 marksMultiple Choice
ACCA · Question 17 · Preparing Basic Financial Statements
Section A
At 1 January 20X8, a mining company had an allowance for receivables of $15,000. During the year, a specific debt of $4,000 was written off as irrecoverable. At 31 December 20X8, the total trade receivables balance (after the write-off) was $400,000. The company policy is to maintain an allowance of 5% of trade receivables. What is the total charge to the statement of profit or loss for irrecoverable debts and allowance for receivables for the year ended 31 December 20X8?
Section A
At 1 January 20X8, a mining company had an allowance for receivables of $15,000. During the year, a specific debt of $4,000 was written off as irrecoverable. At 31 December 20X8, the total trade receivables balance (after the write-off) was $400,000. The company policy is to maintain an allowance of 5% of trade receivables. What is the total charge to the statement of profit or loss for irrecoverable debts and allowance for receivables for the year ended 31 December 20X8?
Answer options:
A.
$5,000
B.
$9,000
C.
$24,000
D.
$20,000
How to approach this question
1. Calculate the irrecoverable debt written off ($4,000). 2. Calculate the required closing allowance (5% of $400,000 = $20,000). 3. Calculate the movement in the allowance ($20,000 - $15,000 = $5,000 increase). 4. Total P&L charge = Write-off + Increase in allowance.
Full Answer
B.$9,000✓ Correct
The total charge to the P&L consists of two elements: the actual debt written off ($4,000) and the movement in the allowance. The required closing allowance is 5% of $400,000 = $20,000. The opening allowance was $15,000, so it must be increased by $5,000. Total expense = $4,000 + $5,000 = $9,000.
Common mistakes
Charging the full closing allowance to the P&L instead of just the movement.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
65 questions · hints · full answers · grading
More questions from this exam
Q01Section A
GlobalHealth Initiative, an international NGO, receives a restricted grant of $500,000...MediumQ02Section A
Quantum AI Ltd, a tech startup, has developed a proprietary algorithm. The directors w...MediumQ03Section A
HydroGrid PLC, a public utility company, receives a $24,000 payment on 1 October 20X5 ...MediumQ04Section A
AgriGrow Ltd operates a large commercial farm. At year-end, they have 10,000 tonnes of...MediumQ05Section A
SteelForge Heavy Industries purchased a blast furnace on 1 January 20X2 for $5,000,000...Hard