1. 1
ASSIGNMENT 3: ACCOUNTING FOR RECEIVABLES
QUESTION 1
Financial year end for Pewangi Bhd is on 31 December each year. Follows are the list of
accounts balances for Pewangi Bhd for 2012:
Gross sales RM258,400
Accounts receivable (at 31 December 2012) RM75,000
Allowance for bad debts (credit balance) RM9,500
Pewangi Bhd has used the percentage-of-sales method to estimate the bad debt expense. For the
past few years, the amount estimated to be uncollectible has been 5%.
REQUIRED:
(a) Using the percentage-of-gross-sales method, estimate the bad debt expense and make the
necessary adjusting entries.
(b)
(c) Assuming that 8% of account receivables are estimated to be uncollectible and the
Pewangi Bhd decides to use the percentage of receivables method to estimate the bad
debt expense, estimate the bad debt expense and make any necessary adjusting entries.
(d)
(e) Which of the two methods more accurately reflects the net realizable value of
receivables? Briefly explained.
QUESTION 2
On September 1, 2012, WWF Bhd used its receivables totalling RM 350,000 as collateral on a
250,000, 15% note from Intelligent Bank. WWF Bhd will continue to collect the assigned
receivables. Intelligent Bank will charge 2% as a finance charge which will be deducted in
advance on the 250,000 value of the note. Collections of receivables for September is
RM100,000, less cash discounts of RM800. On October 1, WWF Bhd paid to the bank the
amount owed for September collection plus accrued interest. During October, WWF Bhd
collected the remaining accounts except for RM550 written off as uncollectible. On November 1,
WWF Bhd paid to Intelligent Bank the remaining account owed plus accrued interest.
REQUIRED:
Prepare the journal entries necessary for both WWF Bhd and Intelligent Bank.
2. 2
QUESTION 3
Shahnas Bhd started his business on 1 July 2011 and involves with trading and service activities
and most of its revenue comes from credit sales. Shahnas Bhd records its sales using gross
method and 5/15, n 30 is applicable for its credit term. During the second half of operations,
Shahnas Bhd found itself in financial difficulties. Shahnas Bhd decided to use its account
receivables and notes receivable as a means of obtaining cash to continue its operations.
Following is information related to Shahnas Bhd activities for the year ended 2012.
1 Dec Sold goods to SilaHamza Bhd for RM149,500.
10 Dec SilaHamza Bhd return the defective goods of RM4,500
31 Dec SilaHamza Bhd forwarded a notice to Shahnas Bhd asking for longer credit
period. Shahnas Bhd agreed to extend the credit period and convert the remaining
balance of account receivable to 12%, 120-day Note Receivable.
21 Jan Provide services to Kala Berhad and issued a bill of RM120,000.
1 Feb Shahnas Bhd factored with recourse RM75,000 of Kala Berhad’s account
receivable for a cash proceed of RM70,000 to the NDLuLu Bank. NDLuLu Bank
withheld 8% of account receivable as protection against sales return and
allowance. The different between factored account receivable and cash proceed is
considered as a finance charge.
29 Feb NDLuLu Bank manage to collect RM68,000 of the factored account receivable,
which include sales return and allowance of RM2,750. The remaining balance of
account receivable is uncollectible. Settlement of factored accounts receivable
was done on this date.
1 March Shahnas Bhd assigned the remainder of its account receivable, RM45,000 as
collateral on a RM35,000, 6% loan from NDLuLu Bank. A commission of 4% on
the face amount of loan was charged.
15 March Discounted without recourse, the Note Receivable dated 31 December to Aris
Bank at a discount rate of 9%.
30 March Collect RM 37,000 of account receivable assigned and remitted it to NDLuLu
Bank.
REQUIRED:
Assuming that there are 360 days in a year, prepare all necessary journal entries for Shahnas
Bhd. Show all your workings.
