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PDD Topical Test

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45 views

PDD Topical Test

Uploaded by

norazian
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Name: ________________________________________

Class: __________

ACCOUNTING
TOPICAL TEST
Irrecoverable Debts & Provision For Doubtful Debts

Section A
Circle the most suitable answer (A, B, C or D). [6]

1. A trader sold goods to Zahid on credit. Zahid was unable to pay the amount owing and the
balance on his account was written off.
Which entries will the trader make to write off this irrecoverable debt?

account to be debited account to be credited


A irrecoverable debts sales
B irrecoverable debts Zahid
C sales irrecoverable debts
D Zahid irrecoverable debts

2. Which of the following is credited to the income statement?

A Increases in the provision for doubtful debts


B Creation of the provision for doubtful debts
C Irrecoverable debts written off for the year
D Decreases in the provision for doubtful debts

3. Which of the following factors is the most likely explanation for why a business has increased its
provision for doubtful debts?

A Credit customers repaying in shorter periods


B Economic outlook improving
C Lower risks of business failure
D Business moving into industry characterized by poor payment of debts
4. Beena maintains a provision for doubtful debts of 3% of the trade receivables at the end of each
financial year.
On 1 September 2019 the provision for doubtful debts was $900. On 31 August 2020 the trade
receivables amounted to $42 800.
Which journal entry did Beena make on 31 August 2020?

Debit Credit
$ $
income statement 384
A
provision for doubtful debts 384
income statement 1 284
B
provision for doubtful debts 1 284
provision for doubtful debts 384
C
income statement 384
provision for doubtful debts 1 284
D
income statement 1 284

5. Wendy maintains a provision for doubtful debts. Which statements are correct?
1 It is an application of the matching principle.
2 It is an application of the prudence principle.
3 It is an estimate of what may be lost because of irrecoverable debts.
4 It is money set aside to cover losses because of irrecoverable debts.
A 1, 2 and 3 B 1 and 4 C 2 and 4 D 2, 3 and 4

6. At the end of the year, trade receivables amount to $12 000. The opening balance on the
provision for doubtful debts account is $600. The provision for doubtful debts remains at 4% of
trade receivables.
Which of the following is the correct entry in the accounts to record the adjustment to provision
for doubtful debts?

Debit $ Credit $
A Income statement 120 Provision for doubtful debts 120
B Provision for doubtful debts 480 Income statement 480
C Provision for doubtful debts 120 Income statement 120
D Income statement 480 Provision for doubtful debts 480
Section B
Mina Kaur’s financial year ends on 31 March. She has provided the following information relating to
her trade receivables for the years 2006, 2007 and 2008.

31 March 2006 31 March 2007 31 March 2008


$ $ $
Trade receivables 12 600 16 410 11 240
Irrecoverable debts to be written off 700 810 540

On 31 March 2006, it was decided to create a provision for doubtful debts at 4% of trade receivables.
This is to be maintained at 4% of trade receivables at the end of each year.

7. Prepare the provision for doubtful debts account for the years ended 31 March 2006, 31 March
2007 and 31 March 2008. [5]
Provision for Doubtful Debts Account
$ $

8. State the amount of net trade receivables that would appear in the Statement of Financial Position
as at 31 March 2006, 31 March 2007 and 31 March 2008. [3]
Statement of Financial Position as at 31 March
2006 2007 2008
$ $ $
Victoria Lee is a sole trader. The balance on her provision for doubtful debts account on 1 January
2011 was $3 500.
On 31 December 2011, the following information was available:
Trade receivables, before writing off irrecoverable debts, were $72 860.
Wi Ling, a debtor who owed $7 800, has been declared bankrupt.
Eric Chang, a debtor who owed $1 760, has been declared bankrupt and a final payment of
40% was received by cheque.
The provision for doubtful debts is maintained at 6% of the closing trade receivables.

9. Calculate the change in the provision for doubtful debts at 31 December 2011. State whether the
change is an increase or decrease. [4]

…………………………………………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………………………………………

10. Show the effect on the Income Statement for the year ended 31 December 2011. [2]
Income Statement for the year ended 31 December 2011
$ $

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