Section A: 1 (a) State 2 reasons why a business chooses to sell goods on credit (b) What is a bad debt? How is it to be treated in the accounts? (c) What is a bad debt recovered? How is it to be treated in the accounts? 2 (a) Define the word provision or allowance. Explain the use of the provision/allowance for doubtful debts. (b) The allowance of doubtful debts is a common practice in business, Which accounting concepts does this practice relate to? Explain 3. Adam's trade receivables as at 31 December is RM28,000. A bad debt of RM1,200 has been written off from the trade receivables. She is of the opinion that about 3% of this outstanding balance will not be able to be collected and she wants to make an appropriate allowance to reflect the uncertainty. How much would be shown as the allowance for doubtful debts in the statement of financial position of the same date? 4. At the end of the year, Travene has an amount of RM180,600 outstanding from trade receivables. There is a bad debt of RM1,400 to be written off in addition to an amount of RM900 which has been written off earlier. She has never made any allowance for doubtful debt: prior to this but her experience indicates that 20% will be become inecoverable. What is the amount of allowance of doubtful debts that should appear in the Statement of Financial Position?5. Venture Trading provided the following information as at 31 December: RM Trade Receivables 71,800 Allowance for doubtful debts (b/d) 2,600 There are further debts amounting to RM840 to be written off. Allowance for doubtful debts for the year end 31 Dee is RM3,548. What are the amounts of Doubtful Debts in the Statement of Profit or Loss and Allowance for Doubtful Debts in the Statement of Financial Position at year end? Question 6: The Trial Balance of Safe & Sound as at 30 June revealed the following RM Trade Receivables 502,740 Bad Debts 7,120 Allowance for doubtful debts, I July (b/d) 23.220 Before the accounts were closed, the owner decided: To write off an amount of RM4,500 owing by Boris because the amount could not be recovered from him: 11) It was decided to reduce the allowance for doubtful debt for the year to RM22.195 Required: Prepare the following as at 30 June : (a) Trade Receivables Control account (b) Bad Debts account (c) Allowance for doubtful debts account Doubtful debre accounts (e) Statement of Profit or Loss (extract) Statement of Financial Position (extractQuestion 7: The following relates to the Trade Receivables of Mama-Mia Son Bhd (Mama Mia) for the accounting years ended 30 September for 3 years: Year Ended Trade Receivables (gross) Bad Debts to be written off 30 Sept RM RM Year 1 110,000 2,500 Year 2 90,000 Year 3 120,000 4,800 Mama Mia decided to write off the above debts as bad debts due to some of the debts being irrecoverable as the trade receivables are bankrupt. Allowance for doubtful debts is to be provided at 3% on the net trade receivables. Required: (a) Fill in the following table and calculate the trade receivable (net) and allowance for doubtful debts: Trade Bad debts Trade Allowance Year ended Receivables to be Receivables for doubtful 30 Sept (Gross) written off (Net) debts (43% RM RM RM RM Year 1 110.090 2.500 Year 2 90.000 Year 3 120.000 4,800 (b) Prepare the allowance for doubtful debts for the year ended 30 Sept for the 3 years. (c) Prepare extracts of the Statement of Profit or Loss for the year ended 30 Sept for Year 2 and Year 3 (d) Statement of Financial Position as at 30 Sept for Year 3. (e) In Year 3, debts RM4 800 proved bad and were written off. Amanda, whose debt of RM500 was written off as bad in year 1, settled her old debt in full by cash during the year 1) Show Bad Debts Recovered account, and 1) Extract of the Statement of Profit or Loss for year ended 30 Sept.Section B: Extra exercise questions (for students' own practice) Question 1: Alberto's trading which prepare its financial statements annually to 31 Dec suffered bad debts which were written off. Year 1: RM420 Year 2: RM310 Year 3: RM580 The business has a balance of RM400 on Allowance for doubtful debts account on 1 Jan Year 1. At the end of each year, the business considered to make provision on the allowance of doubtful debts as : Year 1: RM500 Year 2: RM600 Year 3: RM400 Required: (a) Prepare Allowance for doubtful debts account (b) Show the Statement of Profit or Loss and Statement of Financial Position extract for the 3 years Question 2: Bibi set up business on I January as an extreme games equipments shop. At the end of the 1" year of trading 31 December in yearl, the amount owing to her from customers totalled RM6,570. After some consideration Bibi decided that, of these debts, a total of RM370 was unlikely ever to be received and should be written off as bad. She decided to be prudent and make an allowance of doubtful debts of RM248 By 31 December in year 2. Bibi's trade receivables had increased to RMS.400 and of these RM1,500 were considered to be bad Bibi decided that her general allowance for doubtful debts could be reduced to RM138. End of year 3, Bibi's trade receivable totalled RM6.250 There were no debts that were considered bad, but to provide RM468 allowance for doubtful debts for the wear.Tutorial 7 Trade Receivables Required: (a) Fill up the table with the information above Trade Bad debts Trade Allowance for Year Receivable to be Receivables doubtful debts ended (Gross) written off (Net) 31 Dec RM RM RM RM Year 1 Year 2 Year 3 b) Prepare allowance for doubtful debts account and bad debts account for the year ended 31 December for the 3 years (c) Show the extract of Statement of Financial Position and Statement of Profit or Loss for the year ended 31 Dec for year 3