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WAEC Financial Accounting 2010 Question 15

Question 15

Bad Debts and Provisions

Use the following information to answer questions 15 and 16.
1/1/06 Debtors: D2,600
1/1/06 Provision for bad debts: D60
31/12/06 Bad debts: D60
31/12/06 New provision for bad debts: 5% on debtors

What is the amount of the new provision for bad debts?

  1. A.D130
  2. B.D127
  3. C.D124
  4. D.D120
Show the answer and explanation

Answer: B (D127)

Explanation

Write off the bad debts first: 2,600 − 60 = 2,540; 5% × 2,540 = D127.