Examkin

Question

Difficulty: HardAdjustments for Bad Debts and Provision for Doubtful Debts

At the end of the financial year, a sole trader's trial balance extracted showed Trade Debtors of ₦80,000₦80,000 and an existing Provision for Doubtful Debts of ₦3,000₦3,000. It was decided to write off an additional bad debt of ₦5,000₦5,000 and maintain a provision for doubtful debts at 5%5\% of the remaining trade debtors. What is the net amount of trade debtors to be presented in the Statement of Financial Position (Balance Sheet)?

Answer: 71250 ₦

Answer

The net trade debtors figure to be presented in the Balance Sheet is ₦71,250₦71,250.
To determine the net trade debtors figure in the Balance Sheet, unrecorded bad debts of ₦5,000₦5,000 are first written off from gross debtors of ₦80,000₦80,000, resulting in adjusted debtors of ₦75,000₦75,000. The required closing provision for doubtful debts is 5%5\% of ₦75,000₦75,000, which equals ₦3,750₦3,750. Subtracting this closing provision from adjusted debtors gives ₦75,000−₦3,750=₦71,250₦75,000 - ₦3,750 = ₦71,250.

Step-by-Step Solution

1
Calculate Adjusted Trade Debtors
₦75,000₦75,000
Additional bad debts identified at year-end must be written off from gross trade debtors before calculating the percentage provision for doubtful debts.
2
Calculate Closing Provision for Doubtful Debts
₦3,750₦3,750
The required 5%5\% provision applies to the adjusted trade debtors (5%×₦75,0005\% \times ₦75,000).
3
Compute Net Trade Debtors for Financial Statement Presentation
₦71,250₦71,250
Net trade debtors in the Balance Sheet represents adjusted debtors less the closing provision for doubtful debts (₦75,000−₦3,750₦75,000 - ₦3,750).

Key Concept

Adjustments for Bad Debts and Provision for Doubtful Debts in Final Accounts
Rate this question

Topics

Adjustments for Bad Debts and Provision for Doubtful Debts

More questions from this topic