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Difficulty: MediumProvision for Discounts on Debtors and Creditors

The ledger of Emeka & Sons Enterprise as at 31st December 2025 showed a Trade Debtors balance of ₦250,000\text{₦}250,000. Additional information indicates that an additional bad debt of ₦10,000\text{₦}10,000 is to be written off, a 5%5\% Provision for Doubtful Debts is to be created on the remaining debtors, and a 2%2\% Provision for Discount on Debtors is to be maintained. What is the net amount of Trade Debtors to be presented in the Statement of Financial Position?

  1. ₦223,440\text{₦}223,440Answer
  2. B
    ₦223,200\text{₦}223,200
  3. C
    ₦228,000\text{₦}228,000
  4. D
    ₦222,750\text{₦}222,750

Answer

The net Trade Debtors balance to be shown in the Statement of Financial Position is ₦223,440\text{₦}223,440.
To arrive at the net valuation of Trade Debtors in the Statement of Financial Position, bad debts written off are deducted first from gross debtors (₦250,000−₦10,000=₦240,000\text{₦}250,000 - \text{₦}10,000 = \text{₦}240,000). Next, the provision for doubtful debts is calculated and deducted (5%×₦240,000=₦12,0005\% \times \text{₦}240,000 = \text{₦}12,000), yielding ₦228,000\text{₦}228,000. Finally, the provision for discount on debtors is calculated on this net amount (2%×₦228,000=₦4,5602\% \times \text{₦}228,000 = \text{₦}4,560) and subtracted, giving ₦223,440\text{₦}223,440.

Step-by-Step Solution

1
Deduct bad debts written off from the gross Trade Debtors balance.
Adjusted Debtors = ₦250,000−₦10,000=₦240,000\text{₦}250,000 - \text{₦}10,000 = \text{₦}240,000.
Bad debts written off represent debts confirmed as irrecoverable and must be removed first.
2
Calculate and deduct the Provision for Doubtful Debts.
Provision for Doubtful Debts = 5%×₦240,000=₦12,0005\% \times \text{₦}240,000 = \text{₦}12,000.
Debtors after Doubtful Debts = ₦240,000−₦12,000=₦228,000\text{₦}240,000 - \text{₦}12,000 = \text{₦}228,000.
Provision for discount is only calculated on debtors expected to pay, which excludes doubtful debts.
3
Calculate and deduct the Provision for Discount on Debtors.
Provision for Discount on Debtors = 2%×₦228,000=₦4,5602\% \times \text{₦}228,000 = \text{₦}4,560.
Net Debtors = ₦228,000−₦4,560=₦223,440\text{₦}228,000 - \text{₦}4,560 = \text{₦}223,440.
The discount provision is applied to net good debtors after provision for doubtful debts.

Key Concept

Accounting order of adjustments for Trade Debtors
Estimated Time:1m 30s
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Topics

Provision for Discounts on Debtors and Creditors

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