Increased Visibility in Water Regulation: The framework approved by AEEGSI for 2016-2019 follows the same pillars applied in 2014-2015 and defines that tariffs should cover both opex and capex, with volume risk removed through balance payments and a rising allowance for bad debts
. The (real, pre-tax) return on regulated asset base (RAB) has been reduced by around 70bp (from 6.06%), but the new calculation methodology gives more stability to the return, delinking it from the Italian 10-year government bond yield.
What is good about the restatement is that the adjustments were largely focused on non-cash expenses such as unrecorded depreciation expenses and provision of allowance for bad debts
and not on aggressive revenue recognition policies.
On the other hand, the KDB's provision ratio - the ratio of allowance for bad debts
- plunged from 120.7 percent in 2014 to 78.6 percent last year.
As of December 31, 2013, cash and accounts receivable, net of allowance for bad debts
, totaled USD2.34m; credit available under the company's USD750,000 bank line totaled USD750,000; and the company had only USD153,141 in long term liabilities.
Consequently, in this paper an inventory-credit period decision model has been developed within the DCF framework with an explicit consideration of allowance for bad debts
along with accounts receivable carrying cost.
As a result, they often mechanically calculate taxable income by adjusting book income for any change in the "allowance for bad debts
" account from the prior year.
"So people reduce a judgment account, like the allowance for bad debts
Allowance for Bad Debts
: The division has a $200,000, 7 percent note receivable from a customer who has, for the last ten years, purchased large volumes of the division's products.
As I reviewed the customer accounts the assistant had selected for testing, I noticed an unusual one: a $90,000 credit to accounts receivable control, with an offset to the allowance for bad debts
. The explanation read: "To adjust the general ledger to the accounts receivable trial balance at the branch." I asked the assistant why an adjustment that significant was necessary.
These are accrued warranty expenses and the allowance for bad debts
. Excessive accruals or allowance could be used by management to generate misleading statements."
Once, for example, the auditors thought the allowance for bad debts
at my company was too low.
Assets Cash $70,000 $10,000 Accounts receivable 80,000 100,000 Less: allowance for bad debts
(5,000) (10,000) Interest receivable 0 5,000 Merchandise inventory 120,000 80,000 Prepaid interest 5,000 0 Property, plant and equipment 550,000 650,000 Less: accumulated depreciation (145,000) (160,000) Long-term certificates of deposit 200,000 125,000 Total assets $875,000 $800,000