Fully Worked Questions: Bad Debts and Allowance For Doubtful Debts
Fully Worked Questions: Bad Debts and Allowance For Doubtful Debts
Fully Worked Questions: Bad Debts and Allowance For Doubtful Debts
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Fully Worked Questions on Bad debts and allowance for doubtful debts
1. Ronnie, a trader, decided to make allowance for doubtful debts at the rate of 5% of trade receivables
at the end of its financial year, that is 31 December each year. He made the first allowance on 31
December 2008. Trade receivables has been as follows:
Required:
i. Calculate amount to be adjusted to profit each year.
ii. Allowance for doubtful debts account for the period 31 December 2008 to 1 January 2012
2. Martin, a trader, decided to make allowance for doubtful debts at the rate of 2% of trade receivables
at the end of its financial year, that is 31 March each year. He made the first allowance on 31 March
2009. Trade receivables has been as follows:
Required:
i. Calculate amount to be adjusted to profit each year.
ii. Allowance for doubtful debts account for the period 31 March 2009 to 1 April 2012.
3. The following information is available for Alpha, a trader, for the year ended 30 April 2012.
Trade receivable at Allowance for doubtful Bad debts written off Allowance for doubtful
30 April 2012 debts at 1 May 2011 during the year debts to be
2.5% of trade
$55 680 $1 313 $200
receivables
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4. The following information is available for Beta, a trader, for the year ended 31 March 2012.
Trade receivable at Allowance for doubtful Bad debts to be written Allowance for doubtful
31 March 2012 debts at 1 April 2011 off debts to be
$119 750 $2 528 2 050 2% of trade receivables
5. The following information is available for Zeta, a trader, for the year ended 30 April 2012.
Trade receivable at Allowance for doubtful Bad debts written off Allowance for doubtful
30 April 2012 debts at 1 May 2011 during the year debts to be
$127 200 $3 416 $200 3% of trade receivables
6. Johnson, a trader, has total trade receivables of $52 800 on 31 December 2011 and $1 448 as balance
on the provision for doubtful debts account before adjustments for the year ended 31 December
2011. An analysis of debtors’ (credit customers) revealed the following:
Required:
i. A calculation of the provision for doubtful debts on 31 December 2011.
ii. The adjustment to profit for provision doubtful debts on 31 December 2011.
iii. The provision for doubtful debts account.
(Note: In case of decimals, round off your answer to the nearest whole number)
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7. Bunny, a trader, has total trade receivables of $42 560 on 31 December 2011 and $1 616 as balance
on the provision for doubtful debts account before adjustments for the year ended 31 December
2011. An analysis of debtors’ (credit customers) revealed the following:
Bad debts
Trade Bad debts to be Provision for
Year written off
Receivables written off bad debts
during the year
2008 $12 500 $300 $100 2%
2009 $16 400 $600 $50 3%
2010 $14 800 $400 - 2.5%
2011 $15 200 - $300 3%
Isabelle closes her accounts on 31 December each year. On 1 January 2008, the balance on her
provision for doubtful debts account was $210.
Required:
i. Complete the table below:
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ii. Prepare balance sheet extract for each of the year 2008, 2009, 2010 and 2011 showing
trade receivables and allowance for doubtful debts.
Bad debts
Trade Bad debts to be Provision for
Year written off
Receivables written off bad debts
during the year
2008 $182 500 $1 500 - 2%
2009 $166 400 - $1 900 3%
2010 $174 800 $3 600 $2 200 2.5%
2011 $174 200 $2 500 $300 3%
France closes her accounts on 31 December each year. On 1 January 2008, the balance on her
provision for doubtful debts account was $3 430.
Required:
i. Complete the table below:
ii. Prepare balance sheet extract for each of the year 2008, 2009, 2010 and 2011 showing
trade receivables and allowance for doubtful debts.
ANSWERS TO QUESTIONS
Question 1
Entry in
Allowance Entry in
Trade Allowance
Year for doubtful Change income Remarks
Receivables for doubtful
debts at 5% statement
debts account
$ $ $
1st time allowance
2008 11 400 570 + 570 Cr 570 Dr 570
Decrease profit by $570
2009 12 200 610 + 40 Cr 40 Dr 40 Decrease profit by $40
2010 10 800 540 -70 Dr 70 Cr 70 Increase profit by $70
2011 11 200 560 +20 Cr 20 Dr 20 Decrease Profit $20
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ii.
Question 2
Entry in
Allowance Entry in
Trade Allowance
Year for doubtful Change income Remarks
Receivables for doubtful
debts at 2% statement
debts account
$ $ $
1st time allowance
2009 18 600 372 +372 Cr 372 Dr 372
Decrease profit by $372
2010 18 700 374 +2 Cr 2 Dr 2 Decrease profit by $2
2011 17 450 349 -25 Dr 25 Cr 25 Increase profit by $25
2012 17 650 353 +4 Cr 4 Dr 4 Decrease Profit $4
ii.
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Question 3
Workings
Note: Bad debts in this question has already been written off. Therefore, trade receivables amounting to $55
680 is final amount on which allowance for doubtful debts is to be calculated.
Question 4
Workings
Note: Bad debts in this question has not yet been written off. Therefore, bad debts of $2 050 has to be
deducted from trade receivables of $119 750 before calculating allowance for doubtful debts. Hence,
allowance for doubtful debts is calculated 2% x ($119 750 - $2 050).
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Question 5
Workings
Note: Bad debts in this question has already been written off. Therefore, trade receivables amounting to
$127 200 is final amount on which allowance for doubtful debts is to be calculated.
Question 6
i.
Note: Trade receivables aged up to 2 months = $52 800 – ($10 500+$2 400+$1 500+$3 200), that is $52 800
- $17 600 = $35 200.
ii.
New Provision $2 729
Less Previous provision $1 448
Increase in provision for doubtful debts $1 281
iii.
Dr Allowance for doubtful debts account Cr
Date Details Amount Date Details Amount
$ $
31 Dec 11 Balance c/d 2 729 1 Jan 11 Balance b/d 1 448
31 Dec 11 Income Statement 1 281
2 729 2 729
1 Jan 12 Balance b/d 2 729
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Question 7
i.
Note: Trade receivables aged up to 2 months = $42 560 – ($3 620+$250+$780+$560), that is $42 560 - $5
210 = $37 350.
ii.
New Provision $1 277
Less Previous provision $1 616
Decrease in provision for doubtful debts $339
iii.
Dr Allowance for doubtful debts account Cr
Date Details Amount Date Details Amount
$ $
31 Dec 11 Income Statement 339 1 Jan 11 Balance b/d 1 616
31 Dec 11 Balance c/d 1 277
1 616 1 616
1 Jan 12 Balance b/d 1 277
Question 8
i.
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Note:
Provision for doubtful debts is calculated as a % of trade receivables less any bad debts not yet written off
(i.e bad debts to be written off in the question).
An increase in provision for doubtful debts has been Dr to Income Statement and Cr to Provision for
doubtful debts account (Years 2008, 2009 and 2011).
A decrease in provision for doubtful debts has been Cr to Income Statement and Dr to Provision for doubtful
debts account (Year 2010).
ii.
Question 9
i.
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Note:
Provision for doubtful debts is calculated as a % of trade receivables less any bad debts not yet written off
(i.e bad debts to be written off in the question).
An increase in provision for doubtful debts has been Dr to Income Statement and Cr to Provision for
doubtful debts account (Years 2008, 2009 and 2011).
A decrease in provision for doubtful debts has been Cr to Income Statement and Dr to Provision for doubtful
debts account (Year 2010).
ii.
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