Question 6
Busy Company is a retailer. Most of its sales are made on credit terms. The following information relates to the first 4 years.
Year 1 Year 2 Year 3 Year 4
$ $ $ $
Trade Debtor as at 31 December 500,000 400,000 550,000 600,000
Bad debt written off for
the year ended 31 December - 30,000 10,000 29,000
Busy Company decides to set aside a provision for bad debts equivalent to 5% of trade debtors as at year end.
Required:
(a)Show how the provision for bad debts would be disclosed in the balance sheet as at 31 January Year 1 to Year 4.
(b)Calculate the bad debt expenses for the respective profit and loss account for each of the 4 years.