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Difficulty: MediumCreation and Adjustment of Provision for Doubtful Debts

At 31st March 2026, the trial balance of Okonkwo Stores showed Trade Receivables of ₦250,000\text{₦}250,000 and an existing Provision for Doubtful Debts of ₦8,000\text{₦}8,000. An additional bad debt of ₦10,000\text{₦}10,000 is to be written off, and the provision for doubtful debts is to be adjusted to 5%5\% of the remaining trade receivables. What is the net amount (in ₦\text{₦}) to be charged as an expense to the Profit and Loss Account for provision for doubtful debts?

Answer: 4000 ₦

Answer

The net amount to be charged as an expense to the Profit and Loss Account for provision for doubtful debts is ₦4,000.
The net trade receivables after deducting the additional bad debt of ₦10,000 is ₦240,000. The required provision at 5% is ₦12,000. Comparing this with the existing provision balance of ₦8,000 gives an increase of ₦4,000, which is the amount charged as an expense to the Profit and Loss Account.

Step-by-Step Solution

1
Calculate remaining trade receivables after writing off additional bad debts
₦250,000 - ₦10,000 = ₦240,000
Additional bad debts written off must be deducted from gross trade receivables before calculating the new provision.
2
Calculate the new required provision for doubtful debts
5% of ₦240,000 = ₦12,000
The provision percentage is applied to the net remaining trade receivables figure.
3
Determine the net adjustment required in the Income Statement
₦12,000 - ₦8,000 = ₦4,000
Only the increase in provision over the existing provision is charged as an expense to the Profit and Loss Account.

Key Concept

Calculation of Increase in Provision for Doubtful Debts after deducting additional bad debts written off
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Topics

Creation and Adjustment of Provision for Doubtful Debts

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