Use the following information to answer the given question \(\begin{array}{c|c} \text{1/1/06 Debtors} & D2,600\\ \text{1/1/06 Provision for bad debts} & D60...
Question 1 Report
Use the following information to answer the given question
\(\begin{array}{c|c} \text{1/1/06 Debtors} & D2,600\\ \text{1/1/06 Provision for bad debts} & D60\\ \text{31/12/06 New provision provision for bad debts} & \text{5% on debtors}\end{array}\)
What is the amount of the new provision for bad debts?
Answer Details
The provision for bad debts is an amount set aside to cater for the possibility that some of the company's customers might not pay their debts. In this question, the provision for bad debts at the beginning of the year was given as D60, and the debtors were given as D2,600.
The new provision for bad debts can be calculated by applying the given percentage (5%) to the amount of debtors at the end of the year.
5% of D2,600 = D130
Therefore, the new provision for bad debts at the end of the year is D130.
So the correct answer is option A - D130.
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