A firm has in the past provided for bad debts on the basis of 10% of yr end trade receivables.The provision brought forward(b/d)on 1 Jan 2006 was €520.During the yr ended 31 Dec 2006 the bad debts written off amounted to €620 & the remaining trade receivables totaled €7,400.On 30 September a bad debt of €300 written off in 2003 was recovered.The usual provision for doubtful debts is to be made.
Required for yr ended 31 Dec 2006-
a)The bad debts acc & the provision for bad debts account
b) The relevant extracts from the income statement & balance sheet
To calculate the answers to your questions, we will need to analyze the given information step-by-step:
Step 1: Calculate the bad debts for the year ended 31 Dec 2006:
a) Bad debts written off during the year: €620
b) Bad debt recovered on 30 September: €300
Total bad debts for the year: €620 - €300 = €320
Step 2: Calculate the year-end provision for bad debts:
a) The provision brought forward (b/d) on 1 Jan 2006: €520
b) Total trade receivables on 31 Dec 2006: €7,400
The firm usually provides for bad debts at a rate of 10% of year-end trade receivables. Therefore, the provision for the year can be calculated as follows:
Provision for bad debts=10% * Total trade receivables
Provision for bad debts=10% * €7,400 = €740
Step 3: Calculate the bad debts account and the provision for bad debts account:
a) Bad debts account:
- Bad debts written off during the year: €620
- Bad debt recovered on 30 September: (€300) (since it is a recovery, it is deducted)
Net bad debts = €620 - €300 = €320
b) Provision for bad debts account:
- Provision brought forward (b/d): €520
- Provision for the year: €740
Total provision for bad debts = €520 + €740 = €1,260
Step 4: Extract the relevant information for the income statement and balance sheet:
Income statement:
- Bad debts: €320 (from the calculation in Step 1a)
Balance sheet:
- Provision for bad debts: €1,260 (from the calculation in Step 3b)
- Trade receivables: €7,400 (given in the question)
So, the relevant extracts from the income statement and balance sheet for the year ended 31 Dec 2006 would be as follows:
Income statement extract:
Bad debts: €320
Balance sheet extracts:
Provision for bad debts: €1,260
Trade receivables: €7,400
Please note that these calculations are based on the given information and the assumptions provided. Adjustments may be required based on additional information or specific accounting policies of the firm.