At 31 August 2019, Moggles Limited has total trade receivables of £650,000. There is a known irrecoverable debt included in this figure of £25,000. The directors of Moggles Limited wish to create an allowance for receivables at 31 August 2019 of 3%. The allowance for receivables at 31 August 2018 was £22,000. What is the total charge to the statement of profit or loss in respect of irrecoverable debts and the allowance for receivables for the year ended 31 August 2019?

Question

Quizplus · Accepted Answer

The irrecoverable debt of £25,000 is written off, and the allowance for receivables is calculated on the remaining £625,000 (i.e., £650,000 - £25,000), which is £18,750 (3% of £625,000). The previous allowance was £22,000, so the change in allowance is a decrease of £3,250 (£22,000 - £18,750). The total charge is £25,000 (irrecoverable debt) - £3,250 (decrease in allowance) = £21,750.

At 31 August 2019, Moggles Limited Has Total Trade Receivables