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Difficulty: MediumAdjustments for Bad Debts and Provision for Doubtful Debts

The trial balance of Bello Traders as at 31 December 2024 showed Trade Debtors of ₦340,000₦340,000 and an existing Provision for Doubtful Debts of ₦12,000₦12,000. At the end of the financial year, an additional bad debt of ₦40,000₦40,000 is to be written off, and the provision for doubtful debts is to be adjusted to 5%5\% of trade debtors. What is the total net charge (in ₦₦) to the Profit and Loss Account for bad and doubtful debts for the year?

Answer: 43000 ₦

Answer

The total net charge to the Profit and Loss Account for bad and doubtful debts for the year is ₦43,000₦43,000.
The total net charge to the Profit and Loss Account is ₦43,000₦43,000, obtained by adding the additional bad debt written off (₦40,000₦40,000) to the net increase in the provision for doubtful debts (₦15,000−₦12,000=₦3,000₦15,000 - ₦12,000 = ₦3,000).

Step-by-Step Solution

1
Deduct additional bad debt written off from gross trade debtors
Adjusted trade debtors = ₦340,000−��40,000=₦300,000₦340,000 - ��40,000 = ₦300,000
Bad debts identified at year-end must be written off from gross debtors before determining the provision for doubtful debts.
2
Calculate the closing provision for doubtful debts
New provision = 5%×₦300,000=₦15,0005\% \times ₦300,000 = ₦15,000
The provision percentage is applied strictly to the recoverable net trade debtors figure.
3
Determine the net increase in provision for doubtful debts
Increase in provision = ₦15,000−₦12,000=₦3,000₦15,000 - ₦12,000 = ₦3,000
Only the net change between the closing required provision and opening existing provision affects the current year's Profit and Loss Account.
4
Calculate total expenses charged to the Profit and Loss Account
Total P&L charge = ₦40,000+₦3,000=₦43,000₦40,000 + ₦3,000 = ₦43,000
The total expense comprises both the irrecoverable debt written off directly and the incremental provision created.

Key Concept

Accounting treatment of bad debts written off and provision for doubtful debts adjustments in sole trader final accounts.
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Topics

Adjustments for Bad Debts and Provision for Doubtful Debts

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