Trade receivables total KSh 500,000. Bad debts of KSh 20,000 are written off and a provision for doubtful debts of 5% is made on the remaining balance. What is the amount of the provision?
Answer and explanation
Correct answer: C. KSh 24,000
- Step 1: Receivables after write-off = 500,000 - 20,000 = 480,000. Step 2. Provision = 5% x 480,000 = KSh 24,000. Answer: KSh 24,000. Why not the others: KSh 25,000: That is worked on the balance before the bad debts are written off. KSh 1,000: That is worked on the bad debts only. KSh 44,000: That adds the bad debts to the provision.
Practise more Adjustments, inventory and reconciliations.
Free questions with an explanation for every one, and full timed KASNEB CPA Foundation Level (Kenya) mock tests.
More Adjustments, inventory and reconciliations questions
- A business paid rent of KSh 120,000 for the year ended 31 December. Of this amount, 3 months relate to the next year. What rent expense is c…
- A business paid rent of KSh 96,000 for the year ended 31 December. Of this amount, 2 months relate to the next year. What rent expense is ch…
- A business paid rent of KSh 180,000 for the year ended 31 December. Of this amount, 4 months relate to the next year. What rent expense is c…
- A business paid rent of KSh 240,000 for the year ended 31 December. Of this amount, 5 months relate to the next year. What rent expense is c…
- Trade receivables total KSh 800,000. Bad debts of KSh 40,000 are written off and a provision for doubtful debts of 10% is made on the remain…
- Trade receivables total KSh 320,000. Bad debts of KSh 12,000 are written off and a provision for doubtful debts of 5% is made on the remaini…