Chapter 12 IRRECOVERABLE DEBTS AND ALLOWANCES Learning Objectives Irrecoverable debts and receivables allowances Accounting for irrecoverable debts and receivables allowances Irrecoverable debts and receivables allowances • A receivable should only be classed as an asset if it is recoverable Irrecoverable debts Receivables allowances If definitely irrecoverable, the prudence concept (IAS 1) dictates that it should be written off to the income statement as an irrecoverable debt If uncertainty exists as to the recoverability of the debt, prudence dictates that an allowance should beset up This is offset against the receivables balance on the statement of financial position •Allowances can either be specific, against a particular receivable, or general, against a proportion of all receivables not specifically allowed for, based on past experience Accounting for irrecoverable debts and receivables allowances General allowances When calculating the general allowance to be made, the following order applies Note Only the movement in the general allowance needs to be accounted for Accounting for irrecoverable debts and receivables allowances If a reduction in the receivables allowance is required, then: Accounting for irrecoverable debts and receivables allowances Subsequent recovery of debts If an irrecoverable debt is recovered, having previously been written off, then: If the recovery is in a later accounting period, then the credit is to irrecoverable debts recovered ...Learning Objectives Irrecoverable debts and receivables allowances Accounting for irrecoverable debts and receivables allowances Irrecoverable debts and receivables allowances • A receivable... Accounting for irrecoverable debts and receivables allowances If a reduction in the receivables allowance is required, then: Accounting for irrecoverable debts and receivables allowances Subsequent... recoverable Irrecoverable debts Receivables allowances If definitely irrecoverable, the prudence concept (IAS 1) dictates that it should be written off to the income statement as an irrecoverable