Theory question 108
Bad Debts and Provisions8. The following information has been extracted from the books of Adesuwa Limited on 1st April, 1999. The provision for discounts allowed was N5,830 and the provision for bad debts was N2,234. Discounts allowed during the year to 31st March, 2000 was N18,824 and bad debts written off was N4,832. On 31st March, 2000 debtors amounted to N425,052. The provision for bad debts is to be based upon a specific provision of N5,052 and a general provision on the remainder at 1 percent. The provision for discount allowed is to be 2 percent.
You are required to prepare: (a) Bad Debts Account (b) Provision for Bad Debts Accounts (c) Discount Allowed Account (d) Provision for Discounts Allowed Account (e) Balance Sheet extract as at 31st March, 2000.
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Required provisions: bad debts = specific 5,052 + general 1% × (425,052 − 5,052) = 4,200; total 9,252. Discounts = 2% × (425,052 − 9,252) = 2% × 415,800 = 8,316.
(a) Bad debts account: Dr sundry debtors 4,832; Cr profit and loss 4,832.
(b) Provision for bad debts: balance b/d 2,234; profit and loss (increase) 7,018; balance c/d 9,252.
(c) Discount allowed account: Dr sundry debtors 18,824; Cr profit and loss 18,824.
(d) Provision for discounts allowed: balance b/d 5,830; profit and loss (increase) 2,486; balance c/d 8,316.
(e) Balance sheet extract: debtors 425,052 less provision for bad debts 9,252 = 415,800, less provision for discounts 8,316 = 407,484.
Work out the bad debts provision first; the discount provision is calculated on debtors after deducting it.