question 1 (1a)An increase in the provision for doubtful debts will: A increase the net profit for the year B increase the gross profit for the year C decrease the net profit for the year D decrease the gross profit for the year
question 1
(1a)An increase in the provision for doubtful debts will:
A increase the net profit for the year
B increase the gross profit for the year
C decrease the net profit for the year
D decrease the gross profit for the year
(1b) At the end of the financial year, a business has debtors of RM30,000 & a provision for doubtful debts of R 2,500. It was proposed to maintain provision for doubtful debts at 5%. What will be the amount to be passed to the income statement?
A a debit of RM1,000 C a credit of RM1,000
B a debit of RM1,500 D a credit of RM1,500
(1c) The profit & loss account of a business shows a net profit of RM7,000.
A RM6,850
B RM6,650
C RM7,350
D RM7,100
(1d)If no provision for doubtful debts is made in the current accounting year, the current profit will be….
A overstated B understated C unaffected D undetermined
(1e) If on balance day, the business decided to increase the provision for doubtful debts from RM100 to RM600, the entries in the book would be to：
A debit provision for doubtful debts account, credit bad debts account with RM600
B debit provision for doubtful debts account, credit bad debts account with RM500
C debit doubtful debts account, credit provision for doubtful debts accounts with RM500
D debit bad debt account, credit provision for doubtful debts account with RM600.
Question 2:
The accounts for the year ending 30 November 2016 of ABC Ltd included a provision for doubtful debts at that date of RM900.
During the year ending 30 November 2017, the company received RM500 from Ah Meng towards the settlement of a debt of RM700, which had been written off as irrecoverable by the company in 2015. There is no evidence that Ah Meng will be able to make further payments to the company.
Trade debtors at 30 November 2017 amounted to RM22,000, which includes the following debts it has now been decided to write off as bad:
James RM800
Ali RM300
In its accounts for the year ending 30 November 2017, the company is to continue its policy of maintaining a provision for doubtful debts of 5% of debtors at the year end.
Required:
- Prepare the
journal entries in the books of the company necessitated by the receipt from Ah Meng. Assume cash receipts are journalized. - Prepare the provision for doubtful debts account in the books of the company for year ending 30 November 2017
- Show the entry for debtors which will be included in the
balance sheet as at 30 November 2017 of the company.
Question 3:
(3a) Businesses often create a provision for doubtful debts.
- Of which concept (or convention) is this an example? Explain your answer.
- What is the purpose of creating a provision for doubtful debts?
- How might the amount of a provision for doubtful debts be calculated?
(3b) On 1 January 2015 there was a balance of RM500 in the provision for doubtful debts account, and it was decided to maintain the provision at 5% of the debtors at each year end. The debtors on 31 December each year were:
RM
2015 12,000
2016 8,000
2017 8,000
Show the necessary entries for the three years ended 31 December 2015 to 2017 inclusive in the following:
- Provision for doubtful debts accounts
- Profit & loss accounts.
(3c) What is the difference between bad debts & provision for doubtful debts?
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