(a) Businesses often create a provision for doubtful debts. (i) Of which concept (or convention) is this an example? Explain your answer. (i) What is the purpose of creating a provision for doubtful debts? (iii) How might the amount of a provision for doubtful debts be calculated? (6) On 1 January 20X8 there was a balance of £500 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:

Show the necessary entries for the three years ended 31 December 20X8 to 31 December 20X0 inclusive in the following: (i) the Provision for Doubtful Debts Account; (ii) the Profit and Loss Accounts.

(c) What is the difference between bad debts and provision for doubtful debts?

(d) On 1 January 20X0 Warren Mair owed Jason Dalgleish £130. On 25 August 20X0 Mair was declared bankrupt. A payment of 30p in the £ was received in full settlement. The remaining balance was written off as a bad debt. Write up the account of Warren Mair in Jason Dalgleish’s ledger.

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20X8 12,000 20X9 8,000 20X0 8,000