Assignment Questions:
Assume that you are preparing Galore Ltd’s yearly allowance for doubtful debts based on 2%
of net credit sales, which will potentially result in 10% growth rate. The managing director, Ms
Sharon Shady (Sharon), suggested you to increase the allowance for doubtful debts to 4% in
order to achieve a 5% growth rate. Sharon said to you that: “we do not want our shareholders
to expect our company to sustain a 10% growth every year rather, a 5% growth rate is more
sustainable for our company.”
You are required to conduct research (i. e. reviewing relevant accounting standards and policies
as well as academic and professional journals) and write a business report by addressing the
below questions.
Please note:
The total marks of this assignment are 50 (i. e. 10 marks for Part A, 20 marks for Part B,
10 marks for organization and clarity, and 10 marks for grammar, mechanics, formatting
and referencing), then your marks will be converted to 10% towards your overall
assessment. Refer to the detailed marking rubric on page 3.
Part A
1). What are the relevant factors that should be considered when estimating yearly allowance
for doubtful debts?
2). How does the allowance for doubtful debts potentially impact Galore Ltd’s financial reports?
Part B
1). a. Is it ethical to follow the managing director, Sharon, to estimate the allowance for
doubtful debts based on a predetermined 5% growth rate?
b. Will you follow Sharon’s suggestion?
2). How does your decision about whether to follow Sharon’s suggestion influence various
stakeholders? You are required to provide detailed explanations.