What is the accounting treatment/ journal entries when a client purchases book debt?
Example figures:
Book debt which includes 100k worth of debtors
Book debt purchased for 20K
Thanks in advance!
Replies (4)
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Lower of cost or Net Realisable Value, as with every other asset..
If you recover more than you paid, that is a profit for you.
If you valued the asset at more than 20k, where would you put the difference?
Dr Debtors £20,000
Cr Bank £20,000
The £80,000 is irrelevant for your business in my opinion. You paid £20,000 for something that may or not be realised, hence the discount on the purchase price. When you have pursued the debt and finally agree that you have collected all you are going to collect you will end up with a profit or loss on realisation in the P&L.