Trade Receivables – Page 2

FA – L1 – Q32 – Bad and doubtful debt

Write up irrecoverable debts and allowance for receivables accounts for three years, including financial statement extracts.

Question

Nana makes allowance for receivables at varying percentages based on statistical analysis and the level of outstanding trade receivables. The result of this policy for the last three years is as follows.

Year to December	20X6	20X7	20X8
	GH₵(000)	GH₵(000)	GH₵(000)
Trade receivables at the year end (before adjusting for any irrecoverable debts)	196,860	151,020	216,020
Estimated irrecoverable debts (accounts in liquidation)	1,860	1,020	6,020
Allowance for receivables (%)	5%	6%	7.5%

The allowance for receivables at 1 January 20X6 was GH₵10,000.

Required
Write up the irrecoverable debts expense account and allowance for receivables account for each of the three years. Show the relevant extracts from the statement of financial position for each of the three years.

Answer

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Tags: Accounting entries, Allowance for receivables, Bad Debts, Doubtful debts, Financial Statements, Ghana, Irrecoverable debts, Ledger accounts, Trade Receivables, Year-end adjustments
Level: Level 1

Topic: Bad and doubtful debt

AA – L2 – Q48 – Audit Sampling

List factors for selecting a sample of receivables for confirmation and apply them to Henley Co.'s receivables. Set out procedures for planning, performing, and following up receivables confirmation for Henley Co.

Question

The revenue of Henley Co. for the year ended 30 June 20X8 was C7.5 million, its draft profit before tax was C200,000 and its net assets C1.8 million. At that date the receivables ledger contained 140 live accounts totalling trade receivables of C1.6 million. The accounts can be broken down as follows:

Value range	Number of balances
C000	2
100-150	6
50-100	40
10-50	60
1-10	29
0-1	3
Credit balances (all less than C1,000)	140

The auditor is to use direct confirmation to confirm receivables balances.

Required
(a) List the factors which should be considered when selecting a sample of receivables for confirmation and how those factors should be applied to Henley Co.’s receivables.

(b) Set out the procedures to be performed:

(i) when planning and performing the confirmation

(ii) when following up the results.

Answer

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Tags: Audit Procedures, Audit Sampling, Follow-up Procedures, Receivables Confirmation, Trade Receivables
Level: Level 2

Topic: Audit Sampling and Other Selective Testing Procedures

AA – L2 – Q38 – Audit Evidence

Explain why the audit manager selected PPE, trade receivables, and inventory for further investigation at Mellow Manufacturing. List further information needed from Mellow Manufacturing's financial controller to clarify PPE, receivables, and inventory issues.

Question

Mellow Manufacturing is a long-established manufacturing company. The audit manager has been provided with the following extracts from the draft financial statements for £20X8 prior to the final audit planning meeting with the financial controller.

Draft statement of financial position (extracts)

	Draft 20X8 £’000	Actual 20X7 £’000
Property, plant and equipment	32,560	31,850
Receivables
Trade	7,250	4,340
Other	1,230	1,150
Inventory
Raw materials	2,900	2,100
Work-in-progress	1,450	1,860
Finished goods	2,340	2,020
Current liabilities
Trade	4,320	4,180
Other	2,450	2,340

Draft statement of comprehensive income (extracts)

	Draft 20X8 £’000	Actual 20X7 £’000
Revenue	43,150	40,680
Cost of sales	(29,180)	(28,890)
Gross profit	13,970	11,790
Distribution costs	(3,450)	(3,120)
Administrative expenses	(2,340)	(2,120)
Depreciation/loss on sale of PPE	(2,280)	(1,320)
Profit before tax	5,900	5,230

The manager has reviewed these extracts and has identified three financial statement headings which he believes require further investigation. These are property, plant and equipment, trade receivables, and inventory. He has also calculated the following accounting ratios:

	Draft 20X8	Actual 20X7
Trade receivables collection period	30 days	19 days
Inventory turnover	8.6 times	9.9 times
Gross profit percentage	32%	29%

Required
(a) Explain why the manager has selected these three headings for further investigation.

(b) Set out the further information that the manager should request from the financial controller at the final audit planning meeting in order to clarify the situation with regards to these financial statement headings.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Evidence, Audit Procedures, Financial Statement Analysis, Inventory, Property Plant and Equipment, Trade Receivables
Level: Level 2

Topic: Audit Evidence

Tag (SQ): Trade Receivables

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FA – L1 – Q32 – Bad and doubtful debt

Write up irrecoverable debts and allowance for receivables accounts for three years, including financial statement extracts.

AA – L2 – Q48 – Audit Sampling

List factors for selecting a sample of receivables for confirmation and apply them to Henley Co.'s receivables. Set out procedures for planning, performing, and following up receivables confirmation for Henley Co.

AA – L2 – Q38 – Audit Evidence

Explain why the audit manager selected PPE, trade receivables, and inventory for further investigation at Mellow Manufacturing. List further information needed from Mellow Manufacturing's financial controller to clarify PPE, receivables, and inventory issues.

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FA – L1 – Q32 – Bad and doubtful debt

Write up irrecoverable debts and allowance for receivables accounts for three years, including financial statement extracts.

You're reporting an error for "FA – L1 – Q32 – Bad and doubtful debt"

AA – L2 – Q48 – Audit Sampling

List factors for selecting a sample of receivables for confirmation and apply them to Henley Co.'s receivables. Set out procedures for planning, performing, and following up receivables confirmation for Henley Co.

You're reporting an error for "AA – L2 – Q48 – Audit Sampling"

AA – L2 – Q38 – Audit Evidence

Explain why the audit manager selected PPE, trade receivables, and inventory for further investigation at Mellow Manufacturing. List further information needed from Mellow Manufacturing's financial controller to clarify PPE, receivables, and inventory issues.

You're reporting an error for "AA – L2 – Q38 – Audit Evidence"

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