ICAEW AF · Chapter 10 · Question 3 of 9
At the year end, a business's trade receivables total £86,400 before a debt of £2,400 is written off. The allowance for receivables is to be 3% of the remaining receivables. The allowance at the start of the year was £2,100. What is the total charge to profit or loss for irrecoverable debts and the allowance for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) £2,820
Explanation
Receivables after the write-off = £86,400 - £2,400 = £84,000. Required allowance = 3% x £84,000 = £2,520, an increase of £2,520 - £2,100 = £420. Total charge = write-off £2,400 + increase in allowance £420 = £2,820. Only the change in the allowance is charged, not the full closing balance.
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