Chapter 13: Irrecoverable debts and provisions for doubtful debts

Exam-style questions
1 At the end of his financial year Kahili wrote off a debt owed by a credit customer.
What was the effect of this?

Trade Profit for the year Capital Balance at bank

Receivables

A decreased decreased decreased no effect

B decreased no effect no effect no effect

C no effect no effect decreased decreased

D no effect decreased no effect decreased

2 Wendy maintains a provision for doubtful debts. Which statements are correct?
1 It is an application of the matching principle.
2 It is an application of the prudence principle.
3 It is an estimate of what may be lost because of irrecoverable debts.
4 It is money set aside to cover losses because of irrecoverable debts.

A 1, 2 and 3 B 1 and 4 C 2 and 3 D 2, 3 and 4

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3 Abi maintains a provision for doubtful debts at 2% of trade receivables. On 1 January 20–5
the provision for doubtful debts was $426. The trade receivables on 31 December 20–4
amounted to $20 550.
What entries did Abi make on 31 December 20–4 to adjust the provision for doubtful debts?

Debit $ Credit $

A income statement 15 provision for doubtful debts 15

B income statement 411 provision for doubtful debts 411

C provision for doubtful debts 15 income statement 15

D provision for doubtful debts 411 income statement 411

 Cambridge IGCSE and O Level Accounting

4 K Dhoni is a business consultant.

The following trial balance is provided at 30 September 20–1:

$ $
Capital 94 000
Drawings 12 250
Premises at cost 82 000
Office equipment at cost 19 000
Provision for depreciation of office equipment 1 900
Trade receivables 5 000
Loan (repayable 20–9) 10 000
Irrecoverable debts 100
Provision for doubtful debts 150
Fees from clients 75 300
Insurance 2 400
Printing and stationery 3 150
Wages 47 000
Office expenses 2 950
Rent receivable 5 400
Cash 200
Bank 112 700 186 750
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186 750 186 750

The following additional information is supplied:

1 At 30 September 20–1 – rent received in advance amounted to $1 800
insurance prepaid amounted to $600
printing expenses owing amounted to $150
loan interest owing amounted to $500.
2 The office equipment is being depreciated at the rate of 10% per annum using the
straight line method.
3 The provision for doubtful debts is maintained at 4% of the trade receivables.

a Prepare the income statement of K Dhoni for the year ended 30 September 20–1.
b Prepare the statement of financial position of K Dhoni at 30 September 20–1.
 Chapter 13: Irrecoverable debts and provisions for doubtful debts

5 Harry is a trader selling goods on credit. His financial year ends on 31 December.
The balances on his books on 1 January 20–3 included the following:

$
Provision for doubtful debts 300
Jane, a credit customer 900 debit

Harry’s transactions for the year ended 31 December 20–3 included the following:
January 4 Received a cheque from Jane in full settlement of her account less a
cash discount of 2%
March 5 Sold goods on credit to Jane, list price $200, less trade discount of 20%
May 18 Received $100 cash from Sarah whose account had been written off
two years ago
December 30 Jane was declared bankrupt. She left the country and could not be
traced. Her account was written off
December 31 Harry decided to increase his provision for doubtful debts by $50

Write up the accounts for Jane, irrecoverable debts, debts recovered and provision for
doubtful debts for the year ended 31 December 20–3. Balance or total the accounts or
make an appropriate year-end transfer as necessary.

6 Lakshmi runs a secretarial agency. The following trial balance was prepared on
31 January 20–1:
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$ $
Capital 1 February 20–0 98 000
Drawings 5 000
10 year loan from AB Loans 15 000
Premises at cost 90 000
Office equipment at cost 10 500
Motor vehicles at cost 16 900
Provision for depreciation of office equipment 4 200
Provision for depreciation of motor vehicles 6 480
Trade receivables 7 800
Provision for doubtful debts 172
Bank 2 888
Fees 21 820
Commission receivable 490
Wages 10 200
Insurance 2 250
Rates 3 200
Office expenses 2 450
Loan interest 149 750 149 050
149 050 149 050
 Cambridge IGCSE and O Level Accounting

Additional information:
1 At 31 January 20–1:
• commission receivable outstanding amounted to $30
• wages accrued amounted to $320.
2 The insurance is for 15 months from 1 February 20–0.
3 Lakshmi occupies a flat above the business premises and one quarter of the rates
relate to this flat.
4 Office equipment is being depreciated at 20% per annum on cost.
5 Motor vehicles are being depreciated at 20% per annum using the reducing
balance method.
6 The provision for doubtful debts is to be maintained at 2% of the trade receivables.

a Prepare the income statement for the year ended 31 January 20–1.
b Prepare the statement of financial position at 31 January 20–1.

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