Question

A business, which started trading on 1 January 2010, adjusted its allowance for doubtful debts at the end of year on a percentage basis, but each year the percentage rate is adjusted in accordance with the current economic climate. The following details are available for the three years ended 31 December 2010, 2011 and 2012.

	Bad debts written off year to 31 December	Accounts receivable at 31 December after bad debts written off	Percentage allowance for doubtful debts (%)
2010	1,240	41,000	4
2011	2,608	76,000	6
2012	5,424	88,000	5

You are required to show

1. A bad debts accounts for each of the three years
2. Allowance for doubtful debts accounts for each of the three years
3. Statement of financial position extract as at 31 December 2010, 2011 and 2012.

Answer 1

a.BAD DEBTS ACCOUNT FOR YEAR 2010:

Particulars	Debit($)	Particulars	Credit($)
To Profit and loss a/c	1,240	By Account Receivable a/c	1,240
	1,240		1,240

BAD DEBTS ACCOUNT FOR YEAR 2011:

Particulars	Debit($)	Particulars	Credit($)
To Profit and loss a/c	2,608	By Account Receivable a/c	2,608
	2,608		2,608

BAD DEBTS ACCOUNT FOR YEAR 2012:

Particulars	Debit($)	Particulars	Credit($)
To Profit and loss a/c	5,424	By Account Receivable a/c	5,424
	5,424		5,424

b.ALLOWANCE FOR PROVISION FOR DOUBTFUL DEBTS:

Year	Bad Debts For the Year [A]	Accounts receivable at 31 December after bad debts written off [B]	Percentage allowance for doubtful debts (%) [C]	Amount of provision($) [D=B*C]	Amount to be transferred to P&L for provioning($) [D-A]
2010	1,240	41,000	4	1640	400
2011	2,608	76,000	6	4560	1,952
2012	5,424	88,000	5	4400	No provision needed

c.EXTRACT OF STATEMENT OF INCOME:

FOR 2010:

Particulars	Amount($)
Expenses:
Bad Debts Written off	1,240
Provision for Doubtful Debts	400
Total Expenses	1,640
Particulars	Amount($)
Expenses:
Bad Debts Written off	1,240
Provision for Doubtful Debts	400
Total Expenses	1,640

FOR 2011:

Particulars	Amount($)
Expenses:
Bad Debts Written off	2,608
Provision for Doubtful Debts	1,952
Total Expenses	4,560

FOR 2012:

Particulars	Amount($)
Expenses:
Bad Debts Written off	5,424
Total Expenses	5,424