Question

Question B2

The trial balance as at 31 December 2018 of Beauty Cosmetics Company (“Beauty Cosmetics”) included the following accounts:

Accounts receivable at 31 December 2018 $90,000

Allowance for impairment $10,700 (Dr)

During 2019, total sales amounted to $1,200,000, of which 70% was credit sales. Total receipts from credit customers were $600,000. Besides, $61,000 of accounts receivables was proven to be uncollectible and were written off. At the end of the year, an aging of the accounts receivable indicated the estimated uncollectible amount for accounts receivables was $15,000. The company adjusts its account annually.

Required:

(a) Prepare journal entries to record the impairment loss of receivable in 2019 under Statement of Financial Position approach. (4 marks)

(b) Prepare partial Statement of Financial Positions to show the accounts receivables as at 31 December 2019. (4 marks)

Answer 1

(a)

Journal Entry

Particulars	Debit	Credit
Bad debts	61,000
Debtors		61,000
Allowance for impairment	10,700
Bad debts		10,700
Profit & Loss A/c	65,300
Allowance for impairment		65,300

Allowance for impairment to be made = Ending provision - (Opening Provision - Bad debts)

Allowance for impairment to be made = 15,000 - (10,700 - 61,000)

Allowance for impairment to be made = 15,000 + 50,300

Allowance for impairment to be made = 65,300

(b)

Statement of Financial position

Particulars		Amount	Working
Assets
Current Assets
Cash
Cash Sales	360,000		(1200,000*30%)
Credit sales	600,000
		$960,000
Accounts Receivable
Opening balance	90,000
(+) Credit sales	840,000		(1200,000*70%)
(-) Amount received	600,000
(-) Bad debts written off	61,000
(-) Allowance for impairment	65,300
		$203,700