Tutorial 7 Trade Receivables 1 LTJ 2018

Tutorial 7 – Accounting for Trade Receivables 5. Venture Trading provided the following information as at 31 December:
RM
Section A: Trade Receivables 71,800
Allowance for doubtful debts (b/d) 2,600
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? There are further debts amounting to RM840 to be written off.
(c) What is a bad debt recovered? How is it to be treated in the Allowance for doubtful debts for the year end 31 Dec is RM3,548.
accounts? What are the amounts of Doubtful Debts in the Statement of Profit or
2 (a) Define the word provision or allowance. Explain the use of the Loss and Allowance for Doubtful Debts in the Statement of Financial
provision/allowance for doubtful debts. Position at year end?
(b) The allowance of doubtful debts is a common practice in business.
Which accounting concepts does this practice relate to? Explain. Question 6:

3. Adam’s trade receivables as at 31 December is RM28,000. A bad debt of The Trial Balance of Safe & Sound as at 30 June revealed the following:
RM1,200 has been written off from the trade receivables. She is of the RM
opinion that about 3% of this outstanding balance will not be able to be Trade Receivables 502,740
collected and she wants to make an appropriate allowance to reflect the Bad Debts 7,120
uncertainty. How much would be shown as the allowance for doubtful debts Allowance for doubtful debts, 1 July (b/d) 23,220
in the statement of financial position of the same date?
Before the accounts were closed, the owner decided:
4. At the end of the year, Travene has an amount of RM180,600 outstanding i) To write off an amount of RM4,500 owing by Boris because the
from trade receivables. There is a bad debt of RM1,400 to be written off in amount could not be recovered from him;
addition to an amount of RM900 which has been written off earlier. She has ii) It was decided to reduce the allowance for doubtful debt for the year to
never made any allowance for doubtful debts prior to this but her experience RM22,195.
indicates that 2% will be become irrecoverable. What is the amount of Required:
allowance of doubtful debts that should appear in the Statement of Financial
Position? Prepare the following as at 30 June :
(a) Trade Receivables Control account
(b) Bad Debts account
(c) Allowance for doubtful debts account
(d) Doubtful debts accounts
(e) Statement of Profit or Loss (extract)
(f) Statement of Financial Position (extract)
Tutorial 7 Trade Receivables 2 LTJ 2018

Question 7: Section B: Extra exercise questions (for students’ own practice)

The following relates to the Trade Receivables of Mama-Mia Sdn Bhd Question 1:
(Mama Mia) for the accounting years ended 30 September for 3 years:
Year Ended Trade Receivables (gross) Bad Debts to be written off Alberto’s trading which prepare its financial statements annually to 31 Dec
30 Sept RM RM suffered bad debts which were written off:
Year 1 110,000 2,500 Year 1: RM420
Year 2 90,000 - Year 2: RM310
Year 3 120,000 4,800 Year 3: RM580
The business has a balance of RM400 on Allowance for doubtful debts
Mama Mia decided to write off the above debts as bad debts due to some of account on 1 Jan Year 1.
the debts being irrecoverable as the trade receivables are bankrupt. At the end of each year, the business considered to make provision on the
Allowance for doubtful debts is to be provided at 3% on the net trade allowance of doubtful debts as :
receivables.
Required: Year 1: RM500
Year 2: RM600
(a) Fill in the following table and calculate the trade receivable (net) and Year 3: RM400
allowance for doubtful debts: Required:
Trade Bad debts Trade Allowance (a) Prepare Allowance for doubtful debts account
Year ended Receivables to be Receivables for doubtful (b) Show the Statement of Profit or Loss and Statement of Financial
30 Sept (Gross) written off (Net) debts @3% Position extract for the 3 years.
RM RM RM RM Question 2:
Year 1 110,000 2,500
Year 2 90,000 - Bibi set up business on 1 January as an extreme games equipments shop. At the end
Year 3 120,000 4,800 of the 1st year of trading 31 December in year1, the amount owing to her from
customers totalled RM6,570. After some consideration Bibi decided that, of these
(b) Prepare the allowance for doubtful debts for the year ended 30 Sept for debts, a total of RM370 was unlikely ever to be received and should be written off as
the 3 years. bad. She decided to be prudent and make an allowance of doubtful debts of RM248.
(c) Prepare extracts of the Statement of Profit or Loss for the year ended
30 Sept for Year 2 and Year 3. By 31 December in year 2, Bibi’s trade receivables had increased to RM8,400 and of
(d) Statement of Financial Position as at 30 Sept for Year 3. these RM1,500 were considered to be bad. Bibi decided that her general allowance
(e) In Year 3, debts RM4,800 proved bad and were written off. Amanda, for doubtful debts could be reduced to RM138.
whose debt of RM500 was written off as bad in year 1, settled her old
debt in full by cash during the year . End of year 3, Bibi’s trade receivable totalled RM6,250. There were no debts that
i) Show Bad Debts Recovered account; and were considered bad, but to provide RM468 allowance for doubtful debts for the
ii) Extract of the Statement of Profit or Loss for year ended 30 Sept. year.
Tutorial 7 Trade Receivables 3 LTJ 2018

Required:

(a) Fill up the table with the information above

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