chuong 8 9

On 1 January 20X4 a company received news that a major customer had been declared bankrupt and that its debt of £42,000 is irrecoverable. The bookkeeper has incorrectly recorded the irrecoverable debts expense as £24,000 and credited trade receivables with the same amount.

What journal entry is required to correct the error?

• A Dr Allowance for receivables; Cr Trade receivables

• B Dr Irrecoverable debts expense; Cr Trade receivables

• C Dr Irrecoverable debts expense; Cr Allowance for receivables

• D Dr Allowance for receivables; Cr Irrecoverable debts expense

A business accounts for the expense of irrecoverable debts in administrative expenses. It has reduced its allowance for receivables by £200.

What is the effect on gross profit?

• A Reduce by £200

• B Increase by £200

• C No effect

• D Increase by £400 LO 3a

At 28 February 20X6, a company's allowance for receivables amounted to £18,600. In the year to 28 February 20X7 it decided to write off £3,000 of debts as irrecoverable and to create an allowance for receivables of £24,000.

What should be the charge to the statement of profit or loss for the year ended 28 February 20X7 for irrecoverable debts?

• A £5,400

• B £24,000

• C £18,600

• D £8,400 LO 1d; 3a, c

Kieran has an allowance for receivables of £3,000 at 31 December 20X7. During the year £50 was received in respect of a debt previously written off, and an allowance for receivables of £3,100 is required at 31 December 20X8.

What is the irrecoverable debts charge or credit to be included in the statement of profit or loss for the year to 31 December 20X8?

• A £50 charge

• B £150 charge

• C £50 credit

• D £150 credit LO 1d; 3a, c

5 The trial balance of Kanine Bros as at 31 May 20X7 includes the following:

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Subsequently a review of the receivables ledger reveals the following:

Debts totalling £2,100 are considered irrecoverable and are to be written off. The business wishes to reduce the allowance for receivables to £800.

What is the irrecoverable debt charge or credit to be included in the statement of profit or loss for the year ended 31 May 20X7?

• A £1,480 charge

• B £120 credit

• C £1,480 credit

• D £120 charge LO 1d; 3a, c

At 1 July 20X6 a company's allowance for receivables was £14,000.

At 30 June 20X7, trade receivables amounted to £268,000. It was decided to write off £22,000 of these debts as irrecoverable and adjust the allowance for receivables to £12,000.

What are the final amounts for inclusion in the company's statement of financial position at 30 June 20X7?

• A 268,000 12,000 256,000

• B 246,000 12,000 234,000

• C 268,000 22,000 246,000

• D 246,000 34,000 212,000

At 30 September 20X7 a company has receivables totalling £128,000 and an allowance for receivables of £4,800 brought forward from the previous year.

It has been decided to write off receivables totalling £10,500 and to adjust the allowance for receivables to £3,000.

What will be the net trade receivables balance in the statement of financial position for the year ended 30 September 20X7?

• A £114,500

• B £120,500

• C £135,500

• D £141,500 LO 1d; 3a, c

A business has an allowance for receivables at 1 January 20X7 of £12,500. At 31 December 20X7, the directors of the business determine that a receivable balance of £10,600 is irrecoverable and should be written off and that the allowance for receivables should be increased to £13,530.

What journal entry is required to record these adjustments in the financial statements at 31 December 20X7?

• A Dr Irrecoverable debt expense £24,130; Cr Trade receivables £10,600; Cr Allowance for receivables £13,530

• B Dr Irrecoverable debt expense £11,630; Cr Trade receivables £10,600; Cr Allowance for receivables £1,030

• C Dr Irrecoverable debt expense £14,560; Cr Trade receivables £1,030; Cr Allowance for receivables £13,530

• D Dr Allowance for receivables £11,630; Cr Trade receivables £10,600; Cr Irrecoverable debt expense £1,030

Gem received a bank transfer for £25 on 30 June 20X2 from a credit customer in settlement of an outstanding debt of £100, along with notification that the remainder of the debt will never be paid.

What is the double entry to be recorded on 30 June 20X2?

• A Dr Cash at bank £25; Dr Irrecoverable debts expense £75; Cr Trade receivables £100

• B Dr Cash at bank £25; Dr Irrecoverable debts expense £75; Cr Allowance for receivables £100

• C Dr Cash at bank £25; Dr Allowance for receivables £75; Cr Irrecoverable debts expense £100

• D Dr Cash at bank £25; Dr Allowance for receivables £75; Cr Trade receivables £100

10 On 1 April 20X7 Midge's allowance for receivables stood at £5,558. During the year:

(1) Cash of £900 was received from a credit customer whose debt had been written off many years ago.

(2) A debt of £2,100 was deemed irrecoverable and was to be written off.

At 31 March 20X8 Midge determined that the allowance for receivables needed to be £7,170.

What is the charge for irrecoverable debts expense in Midge's statement of profit or loss for the year ended 31 March 20X8?

• A £3,712

• B £2,812

• C £1,612

• D £712 LO 1d; 3a, c