ICANFinancial AccountingSole Trader Final Accounts2022

Mr Emeka Obi, a sole trader, extracted the following balances at 31 March 2024: Trade receivables ₦620,000; Allowance for doubtful debts (opening) ₦40,000; Bad debts written off during the year ₦25,000. The business policy is to maintain an allowance for doubtful debts at 5% of closing trade receivables after writing off bad debts. What is the net bad and doubtful debts charge to the statement of profit or loss for the year ended 31 March 2024?

A₦14,750CORRECT
B₦55,750
C₦29,750
D₦25,000
AI
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Why the answer is A, and why the others tempt you.
Closing receivables after write-off = ₦620,000 − ₦25,000 = ₦595,000. Required allowance = 5% × ₦595,000 = ₦29,750. Movement in allowance = ₦29,750 − ₦40,000 = −₦10,250 (decrease, so a credit reduces the expense). Total charge = Bad debts written off ₦25,000 − Decrease in allowance ₦10,250 = ₦14,750. This reflects the net income statement impact consistent with the prudence concept under IAS 8 as adopted by FRCN.
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