Question

Consider the following disclosure regarding an entity's reported receivables: Age (days) Gross Probable 0 - 30 20,000 20,000 31 – 60 50,000 50,000 61 – 90 25,000 24,500 500 91+ 5,000 4,000 1,000 Total 100,000 98,500 1,500 • Required: – Critically evaluate the doubtful debts policy of the above entity, suggesting any additional information you would take into consideration QURNE

Answer 1

As per the given data, the company estimates the bad and doubtful debts based on the aging schedule as shown below -

Age in Days	Percentage of Estimation of Doubtful Debts
0 -- 30 Days	0%
31 -- 60 Days	0%
61 -- 90 Days	2%
91 Days +	20%

The policy of the company on estimating the doubtful debts is 0% till 60 days as the company is able to collect the accounts which have age less than 60 days and accounts receivable which have age more than 61 days to 90 days, the estimated doubtful debts is 20% and when it is 91 days or more, then the estimating the doubtful debts is 20%.

Working notes:

Percentage of Estimation of Doubtful Debts = Doubtful Debt Amount / Gross Receivables * 100

= $500 / $25,000 * 100

= 2%

Percentage of Estimation of Doubtful Debts = Doubtful Debt Amount / Gross Receivables * 100

= $1,000 / $5,000 * 100

= 20%