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Difficulty: MediumAdjustments for Bad Debts and Provision for Doubtful Debts

As at 31 December 2025, Adeola Trading Enterprise had Trade Debtors of ₦450,000₦450,000 and an existing Provision for Doubtful Debts of ₦15,000₦15,000. At year-end, an additional bad debt of ₦20,000₦20,000 is to be written off, and the provision for doubtful debts is to be adjusted to 5%5\% of the remaining trade debtors. What is the net amount of trade debtors to be presented under Current Assets in the Statement of Financial Position as at 31 December 2025?

Answer: 408500 ₦

Answer

The net amount of trade debtors to be presented under Current Assets in the Statement of Financial Position is ₦408,500.
To determine the net trade debtors for the Statement of Financial Position, first subtract the additional bad debts of ₦20,000 from gross debtors of ₦450,000, leaving ₦430,000. Next, calculate the closing provision of 5% on ₦430,000, which equals ₦21,500. Subtracting the ₦21,500 provision from ₦430,000 gives ₦408,500 as the net trade debtors figure.

Step-by-Step Solution

1
Deduct additional bad debts from gross trade debtors
Adjusted Debtors = ₦450,000 - ₦20,000 = ₦430,000
Bad debts identified at year-end must be written off from trade debtors before computing the provision for doubtful debts.
2
Calculate the required closing provision for doubtful debts
Closing Provision = 5% of ₦430,000 = ₦21,500
The percentage provision for doubtful debts applies strictly to net trade debtors after writing off bad debts.
3
Calculate net trade debtors for Statement of Financial Position presentation
Net Trade Debtors = ₦430,000 - ₦21,500 = ₦408,500
Trade debtors are shown in the balance sheet net of the closing provision for doubtful debts.

Key Concept

Calculation of Net Trade Debtors for Balance Sheet presentation after adjustments for bad debts and provision for doubtful debts.
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Topics

Adjustments for Bad Debts and Provision for Doubtful Debts

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