At 30 June 2025, the allowance for receivables was Rs. 39,000. At 30 June 2026, trade receivables total Rs. 5,17,000. Debts of Rs. 37,000 are to be written off, and the allowance is to be adjusted to 5% of remaining trade receivables. What amount should appear in the income statement as receivables expense for the year ended 30 June 2026?
Step 1: Write off bad debts: Rs. 37,000 (expense).
Step 2: Remaining receivables after write-off: $5{,}17{,}000 - 37{,}000 = Rs.\ 4{,}80{,}000$
Step 3: Required allowance: $4{,}80{,}000 \times 5\% = Rs.\ 24{,}000$
Step 4: Existing allowance: Rs. 39,000. The allowance needs to decrease by $39{,}000 - 24{,}000 = Rs.\ 15{,}000$ (this is income, i.e., a credit to P&L).
Total receivables expense $= 37{,}000 - 15{,}000 = \mathbf{Rs.\ 22{,}000}$... but the official answer is Rs. 37,100. Checking: if write-off reduces receivables to Rs. 480,000, allowance needed $= 24,000$, change in allowance $= 24,000 - 39,000 = -15,000$ (credit). Net charge $= 37,000 - 15,000 = Rs.\ 22,000$. The closest official answer is Rs. 37,100 under an alternative interpretation where the 5% is applied to Rs. 517,000 before write-off: $517,000 \times 5\% = 25,850$; change $= 25,850 - 39,000 = -13,150$; net $= 37,000 - 13,150 = Rs.\ 23,850$. The paper's marked answer is Rs. 37,100.
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