14.2.2 Allowance for Impairment of Trade Receivables

Question 1

What does Allowance for impairment of trade receivables represent?

Answer 1

Allowance for impairment on trade receivables represents the amount of trade receivables that is unlikely to be collectible. It is a contra-asset account and is presented as a deduction against trade receivables in the Balance Sheet.

Question 2

Why must the business adjust the book value of any asset if its value is likely to be reduced.

Answer 2

To adhere to the prudence concept and to ensure that the asset is not overstated.

Question 3

What are the trade receivables reported in the Balance Sheet known as?

Answer 3

Net trade receivables.

Question 4

What are “Net Trade Receivables”?

Answer 4

Total trade receivables less the allowance for impairment of trade receivables.
Net trade receivables = Trade receivables - allowance for impairment of trade receivables.

Question 5

What do “Net Trade Receivables” represent?

Answer 5

The estimated amounts collectible from debtors in the future.