2

Pich provided the following information.

1 At 1 March 2016 $
trade receivables 56 000
provision for doubtful debts 2 240

2 On 1 December 2016 a debt of $860, owed by Amit, was written off.

3 On 28 February 2017 sales ledger balances totalled $64 800. Included in these
was a balance of $1100 owed by Ruth who had been declared bankrupt.
4 The rate of provision for doubtful debts was to remain unchanged.

REQUIRED

(f) Prepare the following ledger accounts in the books of Pich. Close the accounts by balancing
or by making a transfer to an appropriate account

Pich
Bad debts account

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Provision for doubtful debts account

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............

Ruth account

Date Details $ Date Details $

.......... ...................................... .............. .......... ...................................... ..............

.......... ...................................... .............. .......... ...................................... ..............
.......... ...................................... .............. .......... ...................................... ..............
[12]
[Turn over
 3

(g) Prepare an extract from the statement of financial position of Pich at 28 February 2017
showing the entries for trade receivables.

Pich
Statement of Financial Position (extract) at 28 February 2017

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[3]

[Total: 28]
 4

2 (a) Explain what is meant by the term provision for doubtful debts.

[2]

On 1 May 2014 Samuel’s provision for doubtful debts account showed a balance of $450. On
30 April 2015 his trade receivables amounted to $9750. This included a debt of $250 which had
gone bad and should be written off. Samuel provides for doubtful debts at a rate of 4%.

REQUIRED

(b) Prepare Samuel’s provision for doubtful debts account. Bring down the balance on
1 May 2015.

Samuel
Provision for doubtful debts account

Date Details $ Date Details $

….…. ……………..…..………. …..…. ……… ………....…………… …..…..

…….. ……………....……… …..…. ….….. ………..…..………… …..….

….…. ……………....……… …..…. …..…. ………..……..……… …..….

….…. ……………....……… …..…. …..…. ………..……..……… …..….

….…. ……………....……… ……... …..…. ………..……..……… …..….

….…. ……………….……… …..…. …..…. ………..……..……… …..….

[5]

(c) State where the entry for doubtful debts will appear in the income statement.

[1]

(d) Name the two accounting principles Samuel is applying by maintaining a provision for
doubtful debts account.

2 [2]

[Turn over
 5

(e) Name the two items in the statement of financial position which might be overstated if
Samuel did not maintain a provision for doubtful debts account.

2 [2]

[Total: 12]
 12

4 FTA Industries provided the following information.

At 31 December Trade receivables Rate of provision

$ for doubtful debts
2014 72 100 3%
2015 68 800 2%
2016 83 300 2%

Additional information

1 There were no bad debts during the year ended 31 December 2015.

2 A debt of $1400 owed by Eddie at 31 December 2016 and included in the total at that date
was considered irrecoverable.

REQUIRED

(a) Prepare the provision for doubtful debts account for each of the years ended 31 December
2015 and 2016. Balance the account at the end of each year and bring down the balance.

FTA Industries
Provision for doubtful debts account

Date Details $ Date Details $

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

...……. …………………........……. ….......….. ...……. …………………........……. ….......…..

[8]

(b) State the effect of the doubtful debts on the profit for the year ended 31 December 2015.

...................................................................................................................................................

...............................................................................................................................................[2]
 13

(c) State the double entry made on 31 December 2016 to write off Eddie’s debt.

Account debited Account credited

[2]

(d) Name the book of prime (original) entry used to write off bad debts.

...............................................................................................................................................[1]

(e) Prepare an extract from the income statement for the year ended 31 December 2016 showing
the effect of bad debts and doubtful debts.

FTA Industries
Income Statement (extract) for the year ended 31 December 2016

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...............................................................................................................................................[3]

(f) Name the two accounting principles applied when providing for doubtful debts.

1 ................................................................................................................................................

2 ............................................................................................................................................[2]

[Total: 18]

[Turn over
 8

2 A During the year ended 31 March 2007 Jeremiah lost money through customers not For
paying the amounts due to him. On 1 April 2007 he set up a provision for doubtful Examiner's
Use
debts account.

REQUIRED

(a) (i) Give one reason why Jeremiah decided to set up this account.

[2]

(ii) Describe two factors Jeremiah might consider when deciding the amount to be
provided for in the provision for doubtful debts account.

[2]

(iii) Explain the difference between the accounting treatment of a bad debt and a
doubtful debt.

[2]

On 1 April 2008, Jeremiah’s provision for doubtful debts account had a balance of
$8000. This consisted of an anticipated loss of $2500 which was the total owed by a
debtor, Uriah, who had been declared bankrupt, and a general provision of $5500,
which was 2½ % of all of his debtors.

On 31 May 2008 Liew, who owed Jeremiah $1200, paid Jeremiah only $0.40 for every
dollar owed. The remainder was written off as a bad debt.

On 30 June 2008, Uriah paid Jeremiah $0.35 for every dollar owed, in final settlement
of his account.

On 28 February 2009 Jeremiah wrote off $300 of overdue debts from various debtors.

On 31 March 2009 Jeremiah’s total debtors amounted to $205 000 and he adjusted his
provision for doubtful debts account to 3 % of that amount.

© UCLES 2009 9706/21/M/J/09

 9

REQUIRED For
Examiner's
Use
(b) Prepare in Jeremiah’s ledgers the following accounts for the year ended
31 March 2009.

(i) Provision for doubtful debts account;

[3]

(ii) Bad debts account.

[4]

On 31 March 2009 Khalil, whose debt of $3000 had been written off in 2007, after he
unexpectedly left the country, returned and paid the amount due.

REQUIRED

(iii) Prepare in Jeremiah’s ledgers the bad debts recovered account for the year ended
31 March 2009.

[2]

© UCLES 2009 9706/21/M/J/09 [Turn over

 6

2 Klix Limited’s book-keeper prepared the following details about the firm’s outstanding trade For
receivables at 31 December 2010. Examiner’s
Use

Age of debt Trade Receivables

$
Up to 30 days 16 800
31 to 60 days 12 600
61 to 90 days 7 100
Over 90 days 1 300

The following rates are applied for the estimation of doubtful debts.

Age of debt %
Up to 30 days 1
31 to 60 days 2
61 to 90 days 3
Over 90 days 10

A provision for doubtful debts account is maintained. This had a balance of $800 on
1 January 2010.

The bad debts written off for the year ended 31 December 2009 amounted to $1420.

Debbie, a customer who owed the company $700, has recently been declared bankrupt.
This amount had been included in the details above as ‘outstanding for 61 to 90 days’. It has
been decided to write off the debt immediately.

On 2 October 2010, Harvey, a credit customer, ceased trading and Klix Limited received
payment of $0.25 in the dollar in final settlement of the debt of $600. The remainder had
been written off as a bad debt.

Other bad debts written off during the year ended 31 December 2010 totalled $350. These
had been taken into account when drawing up the list of trade receivables above.

REQUIRED

(a) Calculate the amount which should be provided as a provision for doubtful debts at
31 December 2010. Show your workings.

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

..........................................................................................................................................

................................................................................................................................... [6]

© UCLES 2011 9706/21/O/N/11

 7

(b) Prepare the following ledger accounts for the year ended 31 December 2010, showing For
the closing entry to the final accounts at the end of the year. Examiner’s
Use

(i) Provision for doubtful debts account

..................................................................................................................................

..................................................................................................................................

..................................................................................................................................

..................................................................................................................................

........................................................................................................................... [3]

Bad debts account

..................................................................................................................................

(ii) ..................................................................................................................................

..................................................................................................................................

..................................................................................................................................

........................................................................................................................... [5]

(iii) Harvey account

..................................................................................................................................

..................................................................................................................................

..................................................................................................................................

..................................................................................................................................

........................................................................................................................... [3]
(c) Prepare an extract from the statement of financial position (balance sheet) at
31 December 2010 showing the net amount of trade receivables. [2]

Klix Limited’s directors are reviewing the existing policy for calculating the provision for
doubtful debts.

They are considering applying a 4% rate to all debts as the basis for calculation.

REQUIRED

(d) (i) Calculate the effect of this change on the provision for doubtful debts. [2]

(ii) Explain how this change would affect the company’s income statement and
statement of financial position. [2]

© UCLES 2011 9706/21/O/N/11 [Turn over

 8

2 Sturgess has provided the following information:

1 The provision for doubtful debts at 1 August 2015 was $1940.

2 Trade receivables at 31 July 2016 were $48 500.

3 A customer owing $2100 has been declared bankrupt. This amount is to be written off.

4 A customer owing $900 did not pay within the agreed credit terms. There are concerns about
the recovery of this debt.

5 The business policy is to make a 5% provision for doubtful debts on remaining trade
receivables.

REQUIRED

(a) (i) State one reason why a business may make a provision for doubtful debts.

[1]

(ii) State one accounting concept applied while making the provision for doubtful debts.

[1]

(iii) Prepare the provision for doubtful debts account for the year ended 31 July 2016.

[5]

© UCLES 2017 9706/22/F/M/17

 9

(b) Explain how a provision for doubtful debts is treated in:

(i) the statement of financial position

(ii) the income statement

[3]

Additional information

1 Accrued telephone expenses at 1 August 2015 were $275.

2 Prepaid telephone expenses at 1 August 2015 were $380.

3 The total amounts paid for telephone expenses during the year were $4750. This included a
rental charge of $2980 covering the period from 1 November 2015 to 31 October 2016.

4 Telephone call charges of $840 were paid on 12 September 2016 covering the period from
1 June 2016 to 31 August 2016.

REQUIRED

(c) Prepare the telephone expenses account for the year ended 31 July 2016.

[5]

[Total: 15]

© UCLES 2017 9706/22/F/M/17 [Turn over

1 Which statement is correct?

A The balance on the irrecoverable debts account is carried down to the next accounting
period.
B The balance on the irrecoverable debts account is treated as an expense in the income
statement.
C The balance on the provision for doubtful debts account is calculated before the deduction of
irrecoverable debts.
D The balance on the provision for doubtful debts account is not included in a trial balance.
Nov 2018 P11 Q6

2 A company has the following balances.

trade receivables at 31 December 2017 125 400

provision for doubtful debts at 1 January 2017 1 800

During the year ended 31 December 2017 debts of $20 500 had been written off. The company
provides for doubtful debts at a rate of 5% of trade receivables at each year end.

Which expense for doubtful debts was included in the income statement for the year ended
31 December 2017?

A $3445 B $4470 C $5245 D $6270 Nov 2018 P12 Q9

3 A business has trade receivables of $52 000 at the year-end.

The existing provision for doubtful debts is $3000.

The provision for doubtful debts is to be maintained at 5% of trade receivables.

What is the effect of adjusting the provision?

on profit on current assets

A decrease by $2600 decrease by $400

B decrease by $2600 decrease by $2600
C increase by $400 decrease by $400
D increase by $400 increase by $400 Nov 2018 P13 Q9

4 How is a decrease in the provision for doubtful debts recorded?

in the provision for

in the income statement
doubtful debts account

A added to gross profit credit

B added to gross profit debit
C subtracted from gross profit credit
D subtracted from gross profit debit June 2018 P13 Q6
5 A business has provided the following information.

provision for doubtful debts at 1 January 2017 2 950

trade receivables at 31 December 2017 75 000

The provision for doubtful debts is to be maintained at 5% of trade receivables.

Which entries are made at 31 December 2017?

income provision for doubtful

statement debts account

A $800 credit $800 debit

B $800 debit $800 credit
C $3750 credit $3750 debit
D $3750 debit $3750 credit June 2018 P11 Q5

6 A business created a provision for doubtful debts at 31 December 2016. The provision was
calculated as a percentage of the trade receivables at each year end as follows.

trade provision for

year ended receivables doubtful debts
$ %

31 December 2016 32 500 10

31 December 2017 34 300 5

Which entry in the provision for doubtful debts account for the year ended 31 December 2017
was required?

A $1535 credit
B $1535 debit
C $1715 credit
D $1715 debit June 2018 P12 Q5

7 The following information is available.

provision for doubtful debts at the beginning of the year 6 250

trade receivables at the end of the year 93 750

Provision for doubtful debts is to be maintained at 6% of trade receivables.

Which effect will the provision for doubtful debts have on profit for the year in the income
statement?

A decrease by $625
B decrease by $5625
C increase by $625
D increase by $5625 Nov 2017 P12 Q7
8 At 1 January 2016 a company had the trade receivables totalling $45 000. At 31 December 2016
the trade receivables totalled $32 800 after writing off irrecoverable debts. The company policy is
to maintain a provision for doubtful debts of 5%.

On 1 March 2016 the company was owed $7750 by a customer. The customer could only pay
40% of the debt. The balance was written off as irrecoverable.

What was the net expense in the income statement for the year ended 31 December 2016 for
irrecoverable and doubtful debts?

A $3010 B $4040 C $5260 D $6290 Nov 2017 P13 Q9

9 At the start of the year the provision for doubtful debts was $19 600. During the year irrecoverable
debts of $12 300 were written off. The provision for doubtful debts at the year end was $15 500.

What was the net effect of these items on the profit for the year?

A $4100 decrease
B $4100 increase
C $8200 decrease
D $8200 increase June 2017 P11 Q9

10 The following is an extract from the trial balance of a business at 31 May 2017.

$
trade receivables 72 000
provision for doubtful debts 3 250

A customer owing $5000 has been declared bankrupt. The provision for doubtful debts is to be
maintained at 5% of trade receivables.

Which amount should be included in the financial statements at 31 May 2017?

income statement statement of financial position

(expense) (current assets)
$ $

A 3 350 expense 63 650

B 3 350 expense 66 900
C 5 100 expense 63 650
D 5 100 expense 66 900 June 2017 P13 Q11

11 A trial balance showed a provision for doubtful debts as $1350. Trade receivables were $50 320
which included a debt of $500 which was irrecoverable.

Which entry was required in the provision for doubtful debts account if the closing balance was to
be 5% of trade receivables?

A $1141 credit
B $1141 debit
C $1166 credit
D $1166 debit March 2017 P12 Q8
12 A business maintains a provision for doubtful debts of 5% per annum. It has trade receivables
balances of $560 000 at the start and $468 000 at the end of the financial year.

Which statements are correct?

1 Customers’ accounts have been credited with $4600.

2 $4600 is treated as income in the income statement.
3 $4600 is deducted from current assets in the statement of financial position.

A 1, 2 and 3 B 1 only C 2 only D 2 and 3 only March 2016 P12 Q7

13 A business has the following balances at the end of its financial period.

trade receivables 10 620

bad debt not yet written off 260
provision for doubtful debts brought forward 460

What should the business do if it wishes to maintain the bad debt provision at 5% of trade
receivables?

A Decrease the existing provision by $58.

B Increase the existing provision by $58.
C Decrease the existing provision by $71.
D Increase the existing provision by $71. Nov 2015 P11 Q13

14 A business makes a provision for doubtful debts equal to 10% of trade receivables.

The provision at 31 March 2013 was $8300.

The trade receivables after the provision on 31 March 2014 were $55 800.

What is the change in provision over the 12 months?

A $2100 decrease
B $2100 increase
C $2700 decrease
D $2700 increase Nov 2015 P13 Q8

15 Which entries are required to show a decrease in the existing provision for doubtful debts?

debit credit

A bad debts account provision for doubtful debts account

B income statement provision for doubtful debts account
C provision for doubtful debts account bad debts account
D provision for doubtful debts account income statement
June 2015 P11 Q1