JAMB Principles of Accounts 2005 Question 15

Question 15

Bad Debts and Provisions

Given:
Provision for bad debt (Jan. 2003) ₦1 000
Debtors (Dec. 2003) ₦20 000
Bad debt to be written off (Dec. 2003) ₦2 000
The provision for bad debt stands at 10% of debtors. How much is to be charged to profit and loss account as provision for bad debt?

A.₦800
B.₦1 000
C.₦1 800
D.₦2 000

Show the answer and explanation

Answer: A (₦800)

Explanation

Debtors after write-off = 20 000 − 2 000 = ₦18 000. Provision needed = 10% = ₦1 800. Old provision ₦1 000, so charge the increase: ₦800.