Bad Debt – NBC Institute

FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

Question

The trial balance of Prudent Limited included the following balances as at October 1, 2015:

Account	Amount (₦)
Trade receivables	1,564,000
Allowance for doubtful receivables	78,200

During the year to September 30, 2016, Prudent Limited’s credit sales were ₦8,142,000, cash received from customers was ₦7,820,000, and bad debts written off were ₦46,000. Based on experience, Prudent Limited decided to recognize additional allowance of 5% on its receivables as doubtful.

Required:
Prepare the ledgers for:

Receivables Account
Bad and Doubtful Debt Expense Account
Allowance for Doubtful Receivables Account
(6 Marks)

Answer

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Tags: Bad Debt, Doubtful Receivables, Ledger Accounts, Trade receivables
Level: Level 1

Topic: Bad and Doubtful Debts
Series: MAY 2016

PT – March 2023 – L2 – Q4 – Income Tax Liabilities

Compute the chargeable income and capital allowance for Adwoa Mansa based on her accounts.

Question

Adwoa Mansa is self-employed and has not filed her tax returns to the Ghana Revenue Authority. She applied for a tax clearance certificate in February 2023, and the head of her Tax Office insisted that she submit her accounts for the 2022 year of assessment. Below are the details from her auditors for the year ended 31 December 2022.

Details	Amount (GH¢)
Gross Profit	5,200,000
Expenses:
Utilities	70,000
Travelling expenses	43,000
Depreciation	30,500
Rent	21,200
Maintenance	25,260
Donations	60,250
Bad debts	52,000
Sanitation	20,000
Business promotion	25,620
Salaries	86,000
Net profit	4,766,170

Additional Information from Adwoa Mansa in response to queries raised by the tax official:

Utilities and Rent:
Adwoa Mansa and her husband occupy the apartment next to the shop. 25% of the expenditure on utilities and rent relates to her home.
Travelling Expenses:
28% of the travelling expenses were for private journeys.
Maintenance:
The maintenance figure includes GH¢11,500 for furniture and fittings bought for the shop and GH¢10,000 for painting her apartment.
Donations:
- Donation to Covid-19 fund: GH¢32,250
- Donation to Mallam Atta Women’s Association: GH¢19,500
- Donation to Farmers Day celebration: GH¢8,500
Bad Debts:
- General provision: GH¢26,000
- Specific provision: GH¢10,000
- Loan to husband written off: GH¢16,000
Sanitation:
GH¢1,000 was spent on acquiring equipment for cleaning the office premises.
Business Promotion:
- Permanent billboard: GH¢8,000
- Television advertisement: GH¢6,620
- Entertainment of customers: GH¢11,000
Dividend and Interest:
Adwoa Mansa received a dividend of GH¢18,800 (net) from her investment with Tarzan Ltd and interest of GH¢15,600 from Government Treasury bills. These amounts were included in her gross profit.
Assets Purchased in 2022:
- Computers: GH¢300,000
- Warehouse: GH¢330,000
- Air conditioners: GH¢100,700
  All assets are depreciable for capital allowance purposes.

Required:

a) State the circumstances under which bad debt will be allowable.
(4 marks)

b) Calculate the chargeable income of Adwoa Mansa for the 2022 year of assessment.
(16 marks)

Answer

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Tags: Bad Debt, Capital Allowance, chargeable income, Tax Deductibles
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2023

AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review

Assess the audit implications of subsequent events involving bad debt and legal actions, describe subsequent events review, and recommend audit procedures for identifying material subsequent events.

Question

You are the audit manager in charge of the audit of Serwah Ghanaba Ltd for the year ended 31 December 2014. The partner in charge of the audit instructs you to carry out a review of the company’s activities during the financial year end. The following issues came up during the review.

i) On 28 February 2015, Jessica Mensah, who owed the company GH¢500,000.00, was killed by some robbers on her way to Accra after a visit to her hometown. The amount was part of the GH¢800,000.00 debtors appearing on the statement of financial position for the year end 31 December 2014. It was realized that it will not be possible to recover the amount from the family of Jessica Mensah.

ii) In another development, the marketing director of the Company, Stephen Odoi, who was due to retire on 31 March 2015, embarked on a 6-month leave prior to retirement with effect from 1 October 2014. Investigation instituted in May 2015 revealed that Mr. Stephen Odoi took a contract appointment with another company from 1 November 2014. As a result of the investigation, the company decided to bring an action against Mr. Stephen Odoi to recover the salary paid to him from 1 November 2014 to 31 March 2015.

Required:

a) Assess the audit implications of issues (i) and (ii) above. (10 marks)

b) Describe the nature and purpose of subsequent events review. (5 marks)

c) Recommend the audit procedures which would be carried out in order to identify any material subsequent events. (5 marks)

Answer

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Tags: Audit Procedures, Bad Debt, Contingent Assets, Legal Issues, Subsequent Events
Level: Level 3

Topic: Audit evidence, Evaluation and review, Planning
Series: MAY 2017

FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements

Prepare a Statement of Profit or Loss and a Statement of Financial Position from a provided trial balance and additional information.

Question

Sawaba Limited is a company involved in the construction and fitting of kitchens and wardrobes. The following trial balance was extracted from its books as at 31 October 2017:

The following information, based on your investigations, has also come to your attention:
i) Inventory as at 31 October 2017 was GH¢387,100.
ii) Depreciation is to be charged as follows:

Buildings 4% Straight Line on Cost
Plant & Equipment 15% of Reducing Balance
Land is not being depreciated.
iii) The land and buildings were revalued in total at GH¢1,300,000, of which land amounted to GH¢200,000, as at 31 October 2017. This has not been recorded in the books.
iv) Rent relates to a display unit rented, and its rental period is yearly starting on 1 April each year. The yearly amount of GH¢12,000 is paid in full on this date.
v) There are outstanding balances for Marketing Costs, Salaries, and Telephone Expenses amounting to GH¢2,420, GH¢3,610, and GH¢280, respectively, which have not yet been included in the above trial balance.
vi) A customer owing GH¢6,000 went into liquidation. The liquidator has assured Sawaba Limited that it will receive 10% of the amount. Sawaba Limited has decided that the Allowance for Doubtful Debts should be set at 5%.
vii) Provide for any Loan interest due.
viii) All Expenses are to be allocated evenly between Distribution Costs and Administrative Expenses.

Required:
Prepare a Statement of Profit or Loss Account and Statement of Financial Position for Sawaba Limited for the financial year-ending 31 October 2017. (20 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accruals and Prepayments, Bad Debt, Depreciation, Financial Statements, Profit or Loss Account, Statement of Financial Position
Level: Level 1

Topic: Preparation of limited liability company financial statements
Series: MAY 2018

FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

Question

The trial balance of Prudent Limited included the following balances as at October 1, 2015:

Account	Amount (₦)
Trade receivables	1,564,000
Allowance for doubtful receivables	78,200

Required:
Prepare the ledgers for:

Receivables Account
Bad and Doubtful Debt Expense Account
Allowance for Doubtful Receivables Account
(6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bad Debt, Doubtful Receivables, Ledger Accounts, Trade receivables
Level: Level 1

Topic: Bad and Doubtful Debts
Series: MAY 2016

PT – March 2023 – L2 – Q4 – Income Tax Liabilities

Compute the chargeable income and capital allowance for Adwoa Mansa based on her accounts.

Question

Details	Amount (GH¢)
Gross Profit	5,200,000
Expenses:
Utilities	70,000
Travelling expenses	43,000
Depreciation	30,500
Rent	21,200
Maintenance	25,260
Donations	60,250
Bad debts	52,000
Sanitation	20,000
Business promotion	25,620
Salaries	86,000
Net profit	4,766,170

Additional Information from Adwoa Mansa in response to queries raised by the tax official:

Utilities and Rent:
Adwoa Mansa and her husband occupy the apartment next to the shop. 25% of the expenditure on utilities and rent relates to her home.
Travelling Expenses:
28% of the travelling expenses were for private journeys.
Maintenance:
The maintenance figure includes GH¢11,500 for furniture and fittings bought for the shop and GH¢10,000 for painting her apartment.
Donations:
- Donation to Covid-19 fund: GH¢32,250
- Donation to Mallam Atta Women’s Association: GH¢19,500
- Donation to Farmers Day celebration: GH¢8,500
Bad Debts:
- General provision: GH¢26,000
- Specific provision: GH¢10,000
- Loan to husband written off: GH¢16,000
Sanitation:
GH¢1,000 was spent on acquiring equipment for cleaning the office premises.
Business Promotion:
- Permanent billboard: GH¢8,000
- Television advertisement: GH¢6,620
- Entertainment of customers: GH¢11,000
Dividend and Interest:
Adwoa Mansa received a dividend of GH¢18,800 (net) from her investment with Tarzan Ltd and interest of GH¢15,600 from Government Treasury bills. These amounts were included in her gross profit.
Assets Purchased in 2022:
- Computers: GH¢300,000
- Warehouse: GH¢330,000
- Air conditioners: GH¢100,700
  All assets are depreciable for capital allowance purposes.

Required:

a) State the circumstances under which bad debt will be allowable.
(4 marks)

b) Calculate the chargeable income of Adwoa Mansa for the 2022 year of assessment.
(16 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bad Debt, Capital Allowance, chargeable income, Tax Deductibles
Level: Level 2

Topic: Income Tax Liabilities
Series: MAR 2023

AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review

Assess the audit implications of subsequent events involving bad debt and legal actions, describe subsequent events review, and recommend audit procedures for identifying material subsequent events.

Question

Required:

a) Assess the audit implications of issues (i) and (ii) above. (10 marks)

b) Describe the nature and purpose of subsequent events review. (5 marks)

c) Recommend the audit procedures which would be carried out in order to identify any material subsequent events. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Bad Debt, Contingent Assets, Legal Issues, Subsequent Events
Level: Level 3

Topic: Audit evidence, Evaluation and review, Planning
Series: MAY 2017

FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements

Prepare a Statement of Profit or Loss and a Statement of Financial Position from a provided trial balance and additional information.

Question

Sawaba Limited is a company involved in the construction and fitting of kitchens and wardrobes. The following trial balance was extracted from its books as at 31 October 2017:

The following information, based on your investigations, has also come to your attention:
i) Inventory as at 31 October 2017 was GH¢387,100.
ii) Depreciation is to be charged as follows:

Buildings 4% Straight Line on Cost
Plant & Equipment 15% of Reducing Balance
Land is not being depreciated.
iii) The land and buildings were revalued in total at GH¢1,300,000, of which land amounted to GH¢200,000, as at 31 October 2017. This has not been recorded in the books.
iv) Rent relates to a display unit rented, and its rental period is yearly starting on 1 April each year. The yearly amount of GH¢12,000 is paid in full on this date.
v) There are outstanding balances for Marketing Costs, Salaries, and Telephone Expenses amounting to GH¢2,420, GH¢3,610, and GH¢280, respectively, which have not yet been included in the above trial balance.
vi) A customer owing GH¢6,000 went into liquidation. The liquidator has assured Sawaba Limited that it will receive 10% of the amount. Sawaba Limited has decided that the Allowance for Doubtful Debts should be set at 5%.
vii) Provide for any Loan interest due.
viii) All Expenses are to be allocated evenly between Distribution Costs and Administrative Expenses.

Required:
Prepare a Statement of Profit or Loss Account and Statement of Financial Position for Sawaba Limited for the financial year-ending 31 October 2017. (20 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accruals and Prepayments, Bad Debt, Depreciation, Financial Statements, Profit or Loss Account, Statement of Financial Position
Level: Level 1

Topic: Preparation of limited liability company financial statements
Series: MAY 2018

Question Tag: Bad Debt

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FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

PT – March 2023 – L2 – Q4 – Income Tax Liabilities

Compute the chargeable income and capital allowance for Adwoa Mansa based on her accounts.

AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review

Assess the audit implications of subsequent events involving bad debt and legal actions, describe subsequent events review, and recommend audit procedures for identifying material subsequent events.

FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements

Prepare a Statement of Profit or Loss and a Statement of Financial Position from a provided trial balance and additional information.

FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

PT – March 2023 – L2 – Q4 – Income Tax Liabilities

Compute the chargeable income and capital allowance for Adwoa Mansa based on her accounts.

AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review

Assess the audit implications of subsequent events involving bad debt and legal actions, describe subsequent events review, and recommend audit procedures for identifying material subsequent events.

FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements

Prepare a Statement of Profit or Loss and a Statement of Financial Position from a provided trial balance and additional information.

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FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

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PT – March 2023 – L2 – Q4 – Income Tax Liabilities

Compute the chargeable income and capital allowance for Adwoa Mansa based on her accounts.

You're reporting an error for "PT – March 2023 – L2 – Q4 – Income Tax Liabilities"

AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review

Assess the audit implications of subsequent events involving bad debt and legal actions, describe subsequent events review, and recommend audit procedures for identifying material subsequent events.

You're reporting an error for "AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review"

FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements

Prepare a Statement of Profit or Loss and a Statement of Financial Position from a provided trial balance and additional information.

You're reporting an error for "FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements"

FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts

Prepare ledger accounts for receivables, bad and doubtful debts, and allowance for doubtful receivables.

You're reporting an error for "FA – May 2017 – L1 – SB – Q3a – Accounting Treatment for Bad and Doubtful Debts"

PT – March 2023 – L2 – Q4 – Income Tax Liabilities

Compute the chargeable income and capital allowance for Adwoa Mansa based on her accounts.

You're reporting an error for "PT – March 2023 – L2 – Q4 – Income Tax Liabilities"

AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review

Assess the audit implications of subsequent events involving bad debt and legal actions, describe subsequent events review, and recommend audit procedures for identifying material subsequent events.

You're reporting an error for "AAA – May 2017 – L3 – Q1 – Planning | Audit evidence | Evaluation and review"

FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements

Prepare a Statement of Profit or Loss and a Statement of Financial Position from a provided trial balance and additional information.

You're reporting an error for "FA – May 2018 – L1 – Q5 – Preparation of limited liability company financial statements"

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