Question

Arts Co has a total balance on their receivables account at the year end of £40,800. After reviewing their customer accounts, Arts Co have decided to do the following: write off a debt amounting to £1,700 make a 100% specific provision relating to a debt of £6,600 create a general receivables provision of 3% Arts Co have a receivables provision brought forward of £3,000. What will be the value of the general receivables provision?

Answer 1

The value of the general receivables provision after considering the write-off and specific provision is £975.

Step-by-step explanation:

The value of the general receivables provision for Arts Co can be calculated on the remaining receivables after specific actions have been taken. Firstly, they are writing off a bad debt of £1,700, leaving us with £39,100 (£40,800 - £1,700).

Then, they are making a 100% specific provision for a debt of £6,600, which means this amount is also not considered for the general provision. The calculation then will be based on £32,500 (£39,100 - £6,600), the remaining receivable balance. The general receivables provision at 3% of £32,500 is £975 (£32,500 x 0.03).