(i) Flashman, a bully beef trader, started in business on 1 January 1984. During the year to 31 December 1984 he sold on credit some beef to Tom Brown valued at £50, but failed to receive payment as Brown disappeared. On 31 Decembe r 1984 Flashman examined the balances of his debtors ledger accounts and summarized them:

Just William is disputing the account and is reluctant to pay as the beef he ate put him in hospital for a fortnight. Although Flashman has had no obvious difficulty with the other customers, he thinks that unless he uses undue violence it is likely that some may fail to pay in these 'hard times', (ii) In the year to 31 December 1985, Tom Brown reappeared, paid £10 and then disappeared. Just William paid his account less £170 for doctor's fees (£50 and £120 for removal of his appendix). Other bad debts for the year amounted to £3,000. The turnover (all on credit)
for the year was £60,000. The debtors as at 31 December 1985 amounted to £10,000 and, according to Flashman, the 'hard times'
environment still exists.

Required:

(a) Discuss the accounting problems of income measurement in (i) 1984 and (ii) 1985. Wha t is the value of the asset 'debtors' in each of the years and what is the expense?

(b) Draft the ledger accounts for the year to 31 December 1984.

(c) Continue the accounts for 1985.

Transcribed Image Text:

Tom Brown (as above) Just William 50 200 Sundry other customers 5,000 5,250