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 remaining balance. What is the amount of the provision?
Answer and explanation
Correct answer: B. KSh 76,000
- Step 1: Receivables after write-off = 800,000 - 40,000 = 760,000. Step 2. Provision = 10% x 760,000 = KSh 76,000. Answer: KSh 76,000. Why not the others: KSh 80,000: That is worked on the balance before the bad debts are written off. KSh 4,000: That is worked on the bad debts only. KSh 116,000: That adds the bad debts to the provision.
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