A n allowance for receivables of £4,000 is required at the end of a reporting period. The allowance for receivables brought forward from the previous period is £2,000.

Requirement

What is the impact of the allowance for receivables on profit for the year?

• Decrease by £2,000

• Decrease by £4,000

• Increase by £4,000

• Increase by £2,000

A t 30 September 20X4, Mathieson plc’s allowance for receivables was £19,500. At 30 September 20X5 it was decided to write off irrecoverable debts totalling £6,000 and to decrease the allowance for the remaining receivables to £15,000.

Requirement

What is the adjustment to the statement of profit or loss in respect of irrecoverable debts for the year ended 30 September 20X5?

• 
  

  £21,000 credit

• 
  

  £1,500 debit

• £1,500 credit

• £21,000 debit

Enigma plc has reduced its allowance for receivables by £600.

Indicate whether each of the following statements are true or false.

Requirements

The reduction in the allowance for receivables will increase gross profit by £600.

• 
  

  False

• True

An irrecoverable debt arises in which of the following situations?

• A cheque received in settlement is dishonoured by the customer’s bank

• The customer goes bankrupt

• A customer pays part of the account

• An invoice is in dispute

Bodkin had the following balances in its trial balance at 30 June 20X1.

Bodkin wishes to carry forward at 30 June 20X1 an allowance equal to 10% of trade receivables.

Trade receivables                                              70,000

Irrecoverable debts expense                                 500

Allowance for receivables at 1 July 20X0          5,000

Requirement

What is the irrecoverable debts expense in the statement of profit or loss for the 12-month reporting period ended 30 June 20X1?

• Credit of £2,450

• Charge of £2,500

• Charge of £2,450

• Credit of £2,500

Arrow plc had a receivables balance of £7,050 at 31 December 20X0. During the year £500 was received in respect of a debt previously written off, and an allowance for receivables of £495 was

considered necessary at the year end. The allowance brought down as at 1 January 20X0 was £1,000.

Requirement

What is the amount of irrecoverable debts for inclusion in the statement of profit or loss for the year ended 31 December 20X0?

• debit £5

• credit £5

• credit £1,005

• debit £1,005

During 20X5 Bow plc received £500 from a customer in respect of a balance that had previously been written off, and reduced its allowance for receivables to £100. The allowance brought down as

at 1 January 20X5 was £1,000. At the year end the debt of £280 relating to a customer who has entered administration needs to be written off.

Requirement

What is the amount of irrecoverable debts for inclusion in the statement of profit or loss for the year ended 31 December 20X5?

• 
  

  £880 debit

• £1,300 credit

• £780 debit

• £1,120 credit

A t 1 January 20X1 Urb plc received £3,000 in full settlement of a debt that had previously been written off.

At 31 December 20X1 Urb plc determined that a balance of £3,600 owed by a customer was irrecoverable and should be written off.

Urb plc also decided to decrease its allowance for receivables from £2,200 to £1,500 on 31 December 20X1.

Requirement

What is the amount of irrecoverable debts for inclusion in the statement of profit or loss for the year ended 31 December 20X1?

• £100 debit

• £100 credit

• £1,300 credit

• £1,300 debit

At its year end of 28 February 20X6 Stope plc has in its accounting records a figure for trade receivables of £47,533, and an allowance for receivables of £500 at 28 February 20X5.

One customer, Invincible plc, has experienced financial difficulties and has now gone into administration. Its balance of £10,380 at 28 February 20X6 is deemed to be irrecoverable and should be written off.

The directors of Stope plc also wish to increase the allowance for receivables to £850.

Requirement

What will Stope plc record in its accounting records as at 28 February 20X6 in respect of the above transactions?

• Allowance for receivables of £850 and a charge in respect of irrecoverable debts of £10,730

• Allowance for receivables of £850 and a charge in respect of irrecoverable debts of £10,380

• Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of £10,380

• Allowance for receivables of £1,350 and a charge in respect of irrecoverable debts of £10,730

Meridi plc has an allowance for receivables of £500 on 1 July 20X7. During the year to 30 June 20X8 the following events take place:

(1) A cheque for £92 was recorded and correctly banked but was returned unpaid on 29 June 20X8. No entries have yet been made for this return. The directors wish to write the debt off as irrecoverable.

(2) A n allowance for receivables of £475 is required at the year end.

(3) A cheque received for £58 in respect of an amount written off in January 20X7 was recorded in the cash at bank account but the suspense account was used to record the other side of the transaction.

Requirement

What is the journal entry required to account for the above issues?

• Debit Suspense £58, Debit Irrecoverable debts expense £67, Debit Allowance for receivables

  £25, Credit Cash at bank £92, Credit Receivables £58

• Debit Suspense £58, Debit Irrecoverable debts expense £9, Debit Allowance for receivables

  £25, Credit Cash at bank £92

• Debit Cash at bank £92, Credit Suspense £58, Credit Irrecoverable debts expense £9, Credit

  Allowance for receivables £25

• Debit Suspense £58, Debit Receivables £92, Credit Irrecoverable debts expense £33, Credit

  Cash at bank £92, Credit Allowance for receivables £25