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Adjustments to Final Accounts

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Tüm türler82Çoktan seçmeli43Sayısal26Eşleştirme4Boşluk doldurma9
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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.

Aşağıdaki boşlukları doldurun

The provision for discount on debtors created for the year is ₦\text{₦}, and the final net Trade Debtors balance presented in the Balance Sheet is ₦\text{₦}.
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Cevap

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.

Adım Adım Çözüm

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.

Anahtar Kavram

Sequential Order of Adjustments to Debtors
Soru 82Soru →

A trader extracted a trial balance at 31st December 2025 showing physical stock at cost of N64,000\text{N}64,000. Further inspection revealed that inventory costing N14,000\text{N}14,000 had suffered water damage and could only be sold for N11,000\text{N}11,000 after incurring N2,000\text{N}2,000 in reconditioning expenses. What is the correct figure for closing stock to be credited to the Trading Account?

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Cevap: N59,000\text{N}59,000

Cevap

N59,000\text{N}59,000
Under the prudence accounting convention, inventory is valued at the lower of cost and net realizable value (NRV). The cost of undamaged stock is N50,000\text{N}50,000 (N64,000−N14,000\text{N}64,000 - \text{N}14,000). The damaged stock has a cost of N14,000\text{N}14,000 and an NRV of N9,000\text{N}9,000 (selling price N11,000\text{N}11,000 minus reconditioning costs N2,000\text{N}2,000). Taking the lower value for the damaged stock yields N9,000\text{N}9,000. Combining both gives N50,000+N9,000=N59,000\text{N}50,000 + \text{N}9,000 = \text{N}59,000.

Adım Adım Çözüm

1
Calculate Net Realizable Value (NRV) of the damaged inventory
NRV=Expected Selling Price−Reconditioning Costs=N11,000−N2,000=N9,000\text{NRV} = \text{Expected Selling Price} - \text{Reconditioning Costs} = \text{N}11,000 - \text{N}2,000 = \text{N}9,000
According to the prudence concept and inventory accounting rules, Net Realizable Value is defined as estimated selling price less expenses to complete or sell.
2
Determine cost of undamaged inventory
Undamaged Stock Cost=Total Stock Cost−Damaged Stock Cost=N64,000−N14,000=N50,000\text{Undamaged Stock Cost} = \text{Total Stock Cost} - \text{Damaged Stock Cost} = \text{N}64,000 - \text{N}14,000 = \text{N}50,000
Undamaged goods are valued at their cost price since net realizable value exceeds cost.
3
Calculate total valuation of closing inventory
Total Closing Stock=Undamaged Stock+NRV of Damaged Stock=N50,000+N9,000=N59,000\text{Total Closing Stock} = \text{Undamaged Stock} + \text{NRV of Damaged Stock} = \text{N}50,000 + \text{N}9,000 = \text{N}59,000
Closing inventory must be measured at the lower of cost and net realizable value for each item/category.

Anahtar Kavram

Valuation of Closing Inventory at the Lower of Cost and Net Realizable Value

Alternatif Yöntem

Calculate total stock cost (N64,000\text{N}64,000) and deduct the inventory write-down loss. Inventory Write-down = Cost−NRV=N14,000−(N11,000−N2,000)=N5,000\text{Cost} - \text{NRV} = \text{N}14,000 - (\text{N}11,000 - \text{N}2,000) = \text{N}5,000. Closing stock valuation = N64,000−N5,000=N59,000\text{N}64,000 - \text{N}5,000 = \text{N}59,000.
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