Question

Account receivable have a gross carrying amount of $250 and allowances for doubtful debts of $50....

Account receivable have a gross carrying amount of $250 and allowances for doubtful debts of $50. The related revenue has already been included in taxable profit (loss). Doubtful debts will be deductible for tax purposes when the debt is written off.

Required:

Calculate the tax base for accounts receivable.

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Answer #1

The allowable deduction by tax law of the country is 25% on gross receivable.

Given,

Gross carrying amount = 250

Allowances for doubtful debts = 50

Hence,

Gross amount = Gross carrying amount + Allowances for doubtful debts

                        = 250 + 50

                        = $300

Therefore,

Tax base = Gross amount – (Gross amount × 25%)

                = 300 – (300 × 25%)

                = 300 – 75

                = $225 (Answer)

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