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Difficulty: MediumProvision for Discounts on Debtors and Creditors

In the financial records of Folake Commercial Stores for the year ended 31st December 2025, the Trade Debtors balance stood at ₦400,000\text{₦}400,000. Additional information reveals that bad debts of ₦20,000\text{₦}20,000 are to be written off, a provision for doubtful debts is to be created at 5%5\% of net debtors, and a provision for discount on debtors is to be allowed at 2%2\%.

Based on the adjustments above, complete the financial statement summary by filling in the missing figures.

Answer:The provision for discount on debtors created for the year is ₦\text{₦}【7,220】, and the final net Trade Debtors balance presented in the Balance Sheet is ₦\text{₦}【353,780】.

Answer

The provision for discount on debtors created for the year is ₦7,220, and the net Trade Debtors balance presented in the Balance Sheet is ₦353,780.
Accounting rules require a strict sequential treatment for adjustments to trade debtors: first write off bad debts, second calculate and deduct the provision for doubtful debts, and third calculate the provision for discount on debtors on the remaining balance. Subtracting bad debts (₦20,000\text{₦}20,000) from gross debtors (₦400,000\text{₦}400,000) gives ₦380,000\text{₦}380,000. Deducting a 5%5\% provision for doubtful debts (₦19,000\text{₦}19,000) leaves ₦361,000\text{₦}361,000. Applying the 2%2\% discount rate to ₦361,000\text{₦}361,000 gives ₦7,220\text{₦}7,220 for the provision for discount on debtors. Finally, deducting ₦7,220\text{₦}7,220 from ₦361,000\text{₦}361,000 results in a net Trade Debtors balance of ₦353,780\text{₦}353,780 in the Balance Sheet.

Step-by-Step Solution

1
Deduct bad debts written off from gross debtors to obtain adjusted debtors
₦400,000−₦20,000=₦380,000\text{₦}400,000 - \text{₦}20,000 = \text{₦}380,000
Bad debts are irrecoverable debts and must be written off from gross debtors before calculating any provisions.
2
Calculate the provision for doubtful debts
5%×₦380,000=₦19,0005\% \times \text{₦}380,000 = \text{₦}19,000
The provision for doubtful debts is computed on the net debtors remaining after deducting bad debts.
3
Determine the remaining debtors base eligible for prompt payment discount
₦380,000−₦19,000=₦361,000\text{₦}380,000 - \text{₦}19,000 = \text{₦}361,000
Cash discount will only be expected from debtors who are expected to pay (excluding bad and doubtful debtors).
4
Compute the provision for discount on debtors
2%×₦361,000=₦7,2202\% \times \text{₦}361,000 = \text{₦}7,220
The provision for discount rate (2%2\%) is applied to the net estimated collectible debtors (₦361,000\text{₦}361,000).
5
Calculate the final net Trade Debtors figure for the Balance Sheet
₦361,000−₦7,220=₦353,780\text{₦}361,000 - \text{₦}7,220 = \text{₦}353,780
Both provisions are subtracted from the adjusted debtors to reflect the realistic cash expected to be realized.

Key Concept

Sequential Order of Adjustments to Debtors
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Topics

Provision for Discounts on Debtors and Creditors

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