Question 6

Busy Company is a retailer. Most of its sales are made on credit terms. The following information relates to the first 4 years.

Year 1 Year 2 Year 3 Year 4

＄ ＄ ＄ ＄

Trade Debtor as at 31 December 500,000 400,000 550,000 600,000

Bad debt written off for

the year ended 31 December - 30,000 10,000 29,000

Busy Company decides to set aside a provision for bad debts equivalent to 5% of trade debtors as at year end.

Required:

(a)Show how the provision for bad debts would be disclosed in the balance sheet as at 31 January Year 1 to Year 4.

(b)Calculate the bad debt expenses for the respective profit and loss account for each of the 4 years.