PRC-1 · Chapter 5 · Question 11 of 100
What is the specific computational difference between a 'Specific Allowance' and a 'General Allowance' for doubtful debts?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Specific allowances are created for individual, identifiable customers facing known difficulties, whereas general allowances apply a percentage risk to the remaining normal pool of receivables.
Explanation
Specific allowances target identified risky accounts (e.g., a customer in a dispute). A general allowance is a blanket percentage applied to the remaining 'good' receivables based on historical default rates.
More Bad and Doubtful Debts MCQs
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- Q14'Omega Traders' has a gross Receivables balance of Rs. 200,000. The opening allowance was Rs. 6,000. At year-end, 'Omega' determines the…
- Q15'Sigma Retail' has an opening allowance for doubtful debts of Rs. 15,000. The required closing allowance is calculated to be Rs. 10,000…
- Q16At year-end, 'Prime Distributors' has a Receivables balance of Rs. 150,000. A debt of Rs. 10,000 needs to be written off as bad. 'Prime'…
- Q17Following the previous scenario (Receivables: 150k, Bad debt write-off: 10k, Closing allowance required: 7k). If the opening allowance was…