Lye and Swindle are a Large firm of Solictiors. In the previous financial year it billed one of its clients, steadfast industries, $700,000 for legal advice that it had provided. It has recently been reposted in the financial press that steadfast inducties has entered voluntary administration with debts of $10,000,000.

In the current finacial year, the firm also billed a client $15,--- for divorce, the clients is strugging and has missed the last serval payments. So far, they have only been able to pay $5000. In an email by one of the partners the firm agrees accept the $5000 in satisfaction of the debt.

The firm decides that they will not be able to reciver either the $70,000 or remaing $10,000, so resolved at the last partners meeting of the fincial year to write thme off and make note in minutes of the partners meeting to the effect,. The partnership accounts are not updated until the following year.

1. are Lye and Swindle enttiled to a deduction under section 25-35 ITAA97 for either these amounts?

2. what would happen if, in two years time, the liquidators of stedfast inductries are able to recover and pay to the firm $20,000 of this debt.