Bad debts and provision for Bad/doubtful debts

1. Roma, 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. She made the first allowance on 31
December 2018. Trade receivables has been as follows:

Year 2018 2019 2020 2021

Trade Receivables ($) 11 400 12 200 10 800 11 200

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
2019. Trade receivables has been as follows:

Year ending 31 March 2019 2020 2021 2022

Trade Receivables ($) 18 600 18 700 17 450 17 650

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

Required: Allowance for doubtful debts account.

Page 2
4. The following information is available for Batista, 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

Required: Allowance for doubtful debts account.

5. The following information is available for John, 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

Required: Allowance for doubtful debts account.

6. John, 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:

Age of debt Amount

2 to 3 months $10 500
3 to 6 months $2 400
6 to 12 months $1 500
12 months $3 200

The remaining amount was aged less than 2 months.

Johnson has the policy to for calculating provision for doubtful debts as follows:

Age of debt Provision for doubtful debts

Up to 2 months 2%
2 to 3 months 5%
3 to 6 months 10%
6 to 12 months 20%
12 months 30%

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)

Page 3
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:

Age of debt Amount

2 to 3 months $3 620
3 to 6 months $250
6 to 12 months $780
12 months $560

The remaining amount was aged less than 2 months.

Bunny has the policy to for calculating provision for doubtful debts as follows:

Age of debt Provision for doubtful debts

Up to 2 months 2%
2 to 3 months 5%
3 to 6 months 10%
6 to 12 months 20%
12 months 30%
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)

8. The following information relates to the business of Isabelle:

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:

Adjustment to Profit (Income

New provision Entry in provision for doubtful
Statement) for provision for
Year for doubtful debts account
doubtful debts
debts
Dr Cr Dr Dr
2008
2009
2010
2011

Page 4
 ii. Prepare balance sheet extract for each of the year 2008, 2009, 2010 and 2011 showing
trade receivables and allowance for doubtful debts.

9. The following information relates to the business of France:

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:

Adjustment to Profit (Income

New provision Entry in provision for doubtful
Statement) for provision for
Year for doubtful debts account
doubtful debts
debts
Dr Cr Dr Dr
2008
2009
2010
2011

ii. Prepare balance sheet extract for each of the year 2008, 2009, 2010 and 2011 showing
trade receivables and allowance for doubtful debts.

Page 5
 ANSWERS TO QUESTIONS

Question 1

Workings and answer to part i.

Entry in
Allowance Entry in
Trade Allowance
Year for doubtful Change income Remarks
Receivables for doubtful
debts at 5% statement
debts account
$ $ $
st
1 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

Page 6
ii.

Dr Allowance for doubtful debts account Cr

Date Details Amount Date Details Amount
$ $
31 Dec 08 Balance c/d 570 31 Dec 08 Income Statement 570
31 Dec 09 Balance c/d 610 1 Jan 09 Balance b/d 570
31 Jan 09 Income Statement 40
610 610
31 Dec 10 Income Statement 70 1 Jan 10 Balance b/d 610
31 Dec 10 Balance c/d 540
610 610
31 Dec 11 Balance c/d 560 1 Jan 11 Balance b/d 540
31 Jan 11 Income Statement 20
560 560
1 Jan 12 Balance b/d 560

Question 2

Workings and answer to part i.

Entry in
Allowance Entry in
Trade Allowance
Year for doubtful Change income Remarks
Receivables for doubtful
debts at 2% statement
debts account
$ $ $
st
1 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.

Dr Allowance for doubtful debts account Cr

Date Details Amount Date Details Amount
$ $
31 Mar 09 Balance c/d 372 31 Mar 09 Income Statement 372
31 Mar 10 Balance c/d 374 1 Apr 09 Balance b/d 372
31 Mar 10 Income Statement 2
374 374
31 Mar 11 Income Statement 25 1 Apr 10 Balance b/d 374
31 Mar 11 Balance c/d 349
374 374
31 Mar 12 Balance c/d 353 1 Apr 11 Balance b/d 349
31 Mar 12 Income Statement 4
353 353
1 Apr 12 Balance b/d 353

Page 7
Question 3

Workings

New allowance for doubtful debts

(2.5% x $55 680) $1 392
Less Previous year’s allowance $1 313
Increase in allowance for doubtful debts $79

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.

Dr Allowance for doubtful debts account Cr

Date Details Amount Date Details Amount
$ $
30 Apr 12 Balance c/d 1 392 1 May 11 Balance b/d 1 313
30 Apr 12 Income Statement 79
1 392 1 392
1 May 12 Balance b/d 1 392

Question 4

Workings

Trade receivables $119 750

Less Bad debts (to be written off) $2 050
Trade receivables net of bad debts $117 700
New allowance for doubtful debts
(2% x $117 700) $2 354
Less Previous year’s allowance $2 528
Decrease in allowance for doubtful debts ($174)

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).

Dr Allowance for doubtful debts account Cr

Date Details Amount Date Details Amount
$ $
31 Mar 12 Income Statement 174 1 Apr 11 Balance b/d 2 528
31 Mar 12 Balance c/d 2 354
2 528 2 528
1 Apr 12 Balance b/d 2 354

Page 8
Question 5

Workings

New allowance for doubtful debts

(3% x $127 200) $3 816
Less Previous year’s allowance $3 416
Increase in allowance for doubtful debts ($400)

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.

Dr Allowance for doubtful debts account Cr

Date Details Amount Date Details Amount
$ $
30 Apr 12 Balance c/d 3 816 1 May 11 Balance b/d 3 416
30 Apr 12 30 Apr 12 Income Statement 400
3 816 3 816
1 May 12 Balance b/d 3 816

Question 6

i.

Age of debt Amount Provision for Provision for

doubtful debts doubtful debts $
Up to 2 months $35 200 2% 704
2 to 3 months $10 500 5% 525
3 to 6 months $2 400 10% 240
6 to 12 months $1 500 20% 300
12 months $3 200 30% 960
Total provision for doubtful debts 2 729

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.

Page 9
Question 5
ii.
Workings New Provision $2 729
Less Previous provision $1 448
Increase in provision for doubtful
New allowance for doubtful debts debts $1 281
(3% x $127 200) $3 816
iii. Less Previous year’s allowance $3 416
Dr Increase in allowance
Allowancefor
fordoubtful
doubtfuldebts
debts account ($400) 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

Page 10
Question 7

i.

Age of debt Amount Provision for Provision for

doubtful debts doubtful debts $
Up to 2 months $37 350 2% 747
2 to 3 months $3 620 5% 181
3 to 6 months $250 10% 25
6 to 12 months $780 20% 156
12 months $560 30% 168
Total provision for doubtful debts 1 277

Note: Trade receivables aged up to 2 months = $42 560 – ($3 620+$250+$780+$560), that is $42 560 - $5
210 = $37 350.
Question 7
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.

Adjustment to Profit (Income

New provision Entry in provision for doubtful
Statement) for provision for
Year for doubtful debts account
doubtful debts
debts
Dr Cr Dr Cr
2008 (12500-100) x
248-210=$38 $38
2% = $248
2009 (16400-50) x 490.50-248=
$242.50
3% = $490.50 $242.50
2010 14800 x 2.5% 490.50-370 =
$120.50
= $370 $120.50
2011 (15200-300) x 447 – 370 =
$77
3% = $447 $77
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.

Balance Sheet extract as at 31 December

Current Assets 2008 $ $ $
Trade receivables 12 400
Less Allowance for doubtful debts (248) 12 152

Balance Sheet extract as at 31 December 2009

Current Assets $ $ $
Trade receivables 16 350.00
Less Allowance for doubtful debts (490.50) 15 859.50

Balance Sheet extract as at 31 December 2010

Current Assets $ $ $
Trade receivables 14 800
Less Allowance for doubtful debts (370) 14 430

Balance Sheet extract as at 31 December 2011

Current Assets $ $ $
Trade receivables 14 900
Less Allowance for doubtful debts (447) 14 453

Question 9

i.

Adjustment to Profit (Income

New provision Entry in provision for doubtful
Statement) for provision for
Year for doubtful debts account
doubtful debts
debts
Dr Cr Dr Cr
2008 182 500 x 2% 3 650–3 430
$220
= $3 650 =$220
2009 (166 400 -
4 935 – 3 650
1 900) x 3% = $1 285
= $1 285
$4 935
2010 (174800-2200)
4 935 – 4 315
x 2.5% = $620
= $620
$4 315
2011 (174200-300) 5 217 – 4 315
$902
x 3% = $5217 =$902
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.

Balance Sheet extract as at 31 December

Current Assets 2008 $ $ $
Trade receivables 182 500
Less Allowance for doubtful debts (3 650) 178 850

Balance Sheet extract as at 31 December 2009

Current Assets $ $ $
Trade receivables 164 500
Less Allowance for doubtful debts (4 935) 159 565

Balance Sheet extract as at 31 December 2010

Current Assets $ $ $
Trade receivables 172 600
Less Allowance for doubtful debts (4 315) 168 285

Balance Sheet extract as at 31 December 2011

Current Assets $ $ $
Trade receivables 173 900
Less Allowance for doubtful debts (5 217) 168 683