Writing off outstanding debtors

Question

As per the last suggest, on how to write off prior period sundry debtor outstanding it is told to debit bad debt expense and credit debtor.But here the problem is that if all  is booked as expense with such huge balance then *** profit will decline drastically.So suggest me what will be appropriate method to deal with.

And can you please suggest us hence forth how to book provision for bad debt so it wont be conflict with IFRS.

Answer 1

Unfortunately, if your debtor seems to be uncollectible then there is no option other than writing off or making a full provision. In both ways your P&L is going to get debited by the amount of the debtor balance. You may write off the debtors part by part over a period but you will have to justify your method to auditors. Just check also some related questions below:

http://***.ifrsanswer.***/1/general-provision-for-doubtful-debts
http://***.ifrsanswer.***/446/should-i-discount-trade-debtors

Answer 2

IAS 8.42 allows prior period errors to be corrected retrospectively. So if you consider that non-writing off of your debtors in the previous period as an error, then you can credit the debtor and debit the accumulated profit instead of the current P&L.

Generally changes in debtor provisions/bad debts come under changes in accounting estimates which should be corrected retrospectively. However if you consider that you did not write off in the previous period although you had the information of debtor going bankrupt or something similar but the write-off was not done by mistake, then you can say that it is a correction of a prior period error.

Comments

Advising for creative accounting! not a good practice at all.  I don't think the auditors will be so dumb to understand the trick.