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Difficulty: MediumProvision for Discounts on Debtors and Creditors

The trial balance of Danladi Commercial Ventures as at 31st December 2025 shows Trade Debtors of ₦180,000\text{₦}180,000. Additional information reveals that bad debts of ₦10,000\text{₦}10,000 are to be written off, a provision for doubtful debts is to be maintained at 5%5\% on the remaining debtors, and a provision for discount on debtors of 2%2\% is to be established. What is the net Trade Debtors balance to be presented in the Statement of Financial Position?

  1. ₦158,270\text{₦}158,270Answer
  2. B
    ₦158,100\text{₦}158,100
  3. C
    ₦157,900\text{₦}157,900
  4. D
    ₦161,500\text{₦}161,500

Answer

₦158,270\text{₦}158,270
The correct valuation of net debtors requires a sequential calculation: start with gross debtors of ₦180,000\text{₦}180,000, subtract bad debts written off of ₦10,000\text{₦}10,000 to get ₦170,000\text{₦}170,000, calculate and subtract the 5%5\% provision for doubtful debts (₦8,500\text{₦}8,500) to arrive at ₦161,500\text{₦}161,500, and finally compute and subtract the 2%2\% provision for discount on debtors (2%2\% of ₦161,500=₦3,230\text{₦}161,500 = \text{₦}3,230). This gives a net debtors figure of ₦158,270\text{₦}158,270.

Step-by-Step Solution

1
Deduct bad debts written off from gross debtors
₦180,000−₦10,000=₦170,000\text{₦}180,000 - \text{₦}10,000 = \text{₦}170,000
Bad debts must be eliminated from gross debtors before calculating provisions.
2
Calculate and deduct provision for doubtful debts
5%×₦170,000=₦8,5005\% \times \text{₦}170,000 = \text{₦}8,500; remaining debtors = ₦170,000−₦8,500=₦161,500\text{₦}170,000 - \text{₦}8,500 = \text{₦}161,500
Provision for doubtful debts is calculated on debtors remaining after bad debts write-off.
3
Calculate provision for discount on debtors on net good debtors
2%×₦161,500=₦3,2302\% \times \text{₦}161,500 = \text{₦}3,230
Provision for discount on debtors is allowed only to customers who are expected to pay (good debtors).
4
Determine net debtors to present in the Statement of Financial Position
₦161,500−₦3,230=₦158,270\text{₦}161,500 - \text{₦}3,230 = \text{₦}158,270
The final valuation subtracts the discount provision from the debtors remaining after doubtful debts provision.

Key Concept

Accounting adjustment sequence for Provision for Discount on Debtors in final accounts
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Topics

Provision for Discounts on Debtors and Creditors

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