Receivables and Periodic Measurement

Question 1

What are receivables?

Answer 1

• represent an economic and legal right to receive money in settlement of a transaction = asset
• debtors are measured at selling price
• profit recognised when sale takes place

Question 2

What is asset derecognition?

Answer 2

if an asset is no longer an ‘economic resource’ it must be derecognised
-involved eliminating the asset with a corresponding reduction of earnings

Question 3

What are irrecoverable/bad debts?

Answer 3

-debts where it is certain the customers will not pay

arise when a trade receivable is unable to pay the amount owed.

Question 4

Why is a debt irrecoverable?

Answer 4

• the customer cannot be traced
• the customer is not worth taking to court
• has been declared bankrupt

Question 5

What are doubtful debts?

Answer 5

debts which there is uncertainty whether that debt can be paid.
-probable future loss

Question 6

What is an allowance for a doubtful debt?

Answer 6

-involves setting aside income from this year to meet the loss which will occur next year.

Question 7

Types of allowance for doubtful debt

Answer 7

1. Specific Allowance
   - in respect of particular trade receivable that has been identified as unlikely to pay their debts
2. A general allowance
   - representing an estimate, usually computed as a percentage, or trade receivables who are unlikely to pay their debts