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What is the best accounting treatment for...

Debtor facing financial difficulties, after BS date agreement reached of 75c for every 1£ a j

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One of the debtors owing £14,000 is facing financial difficulties. 10 days after end of the financial year, an agreement was reached wherein the company accepted that the debtor pays 80c for every £1 outstanding in the full settlement of the amount due. 


How should it be accounted for in the financial statements of the year just ended?

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By johngroganjga
03rd Oct 2017 22:26

You provide for the expected loss - assessed on a prudent basis, and not necessarily limited to the 20% agreed discount.

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By tom123
04th Oct 2017 07:45

Presumably by the accounts are finally signed off, you have a better idea of how the debt resolved itself?

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By paulwakefield1
04th Oct 2017 08:29

If your concern is that it is a non adjusting balance sheet event (as they used to be called) that is clearly not the case.

It is inconceivable that some catastrophic event happened to the customer post the balance sheet date and that agreement was reached for an 80% settlement all within 10days.

So the financial difficulties and inability to achieve full recovery of the debt were in existence at the balance sheet date and provision should be made as previous responders have said.

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By Vaughan Blake1
04th Oct 2017 10:01

Assuming time is on your side, I would suggest you delay signing off the accounts until the earlier of the last possible minute and when the creditor has actually paid up. If no payment is forthcoming by the last minute, and any payment is looking a bit iffy, then you can fully provide for the debt. If a part payment is taken in full and final settlement, the shortfall can be provided for at the year end.

My view is that you should look at all year end O/S debts just before signing off the accounts, and take an objective view to see if a specific provision is needed.

Oh, and don't forget the VAT treatment for the bad debt element.

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