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 remaining balance. What is the amount of the provision?
Answer and explanation
Correct answer: C. KSh 15,400
- Step 1: Receivables after write-off = 320,000 - 12,000 = 308,000. Step 2. Provision = 5% x 308,000 = KSh 15,400. Answer: KSh 15,400. Why not the others: KSh 16,000: That is worked on the balance before the bad debts are written off. KSh 600: That is worked on the bad debts only. KSh 27,400: That adds the bad debts to the provision.
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