Subsequent to the topic of #67 Identification of Doubtul Debt, we would like to proceed further on how to evaluate the exposure to doubtful debt. A very critical question to ask: Does all long outstanding debt represents doubtful debt, for which the provision need to be provided for ? The answer is very subjective, and involved a lot of professional judgement.
Let's start the evaluation with asking our readers a few scenarios as below:
[Scenario A] XYZ Company has outstanding amout due from Company A (aged > 90 days), who is long standing customer of XYZ Company for the past 10 years with no history of default in repayment. The long outstanding amount is attributable to the slow-repaying from Company A.
[Scenario B]XYZ Company has outstanding amount due from Company B(aged > 90 days), who is long standing customer of XYZ COmpany for the past 20 years with no history of default in repayment. Company B usually paid the amounts on time. There is no dispute involved in the outstanding amount due from Company B.
We invite our 'Accouting & Auditing blog' readers to evaluate the recoverability of outstanding amount due from Company A and Company B respectively.