In its annual report for 2010, HMV Group pic showed total revenues of £2,016.6 million for 2010 versus £1,956.7 million for 2009, and net accounts receivable balances of £80.7 million at the end of 2010 versus £71.6 million at the end of 2009. The notes that accompanied the financial statements revealed that it provided for impairment of its accounts receivable of £0.6 million in 2009 (£1.2 million in 2008). It does not try to measure the uncollectibility of its accounts receivable, because it believes that it has minimal levels of credit risk because of the nature of its retail business. (HMV sells music and movies through HMV outlets in several countries, including Canada.)
Required:
a. What percentage of revenue is HMV's accounts receivable in each of these years?
b. Explain the difference between measuring and recording the impairment of accounts receivable and measuring and recording potential collectibility.
c. Do you think that using impairment instead of uncollectibility fits with the qualitative characteristics discussed in Chapter 1? Explain.