It is the policy of Hellebore Ltd to make provisions for doubtful debts at a rate of 15 per cent per annum on all debtor balances at the end of the year, after deducting any known bad debts on the same date. The following table sets out the total receivables (debtors) as shown by the accounting records and known bad debts to be deducted from that total. There is no provision on 31 December Year 0.

Required:

(a) Calculate the total expense in the income statement (profit and loss account) with respect to bad and doubtful debts.

(b) Set out the statement of financial position (balance sheet) information with respect to receivables (debtors) and provision for doubtful debts at each year end.

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Year end 31 December Year 1 31 December Year 2 31 December Year 3 31 December Year 4 Debtor balances 40,000 45,000 42,000 38,000 Known bad debts 3,000 4,000 2,500 1,500