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...

Answer Details

The provision for bad debts is the estimated amount of debts that are not likely to be recovered by a business from its customers. In this question, the provision for bad debts on 1/1/06 is given as D60. On 31/12/06, a new provision for bad debts is created which is calculated as 5% on debtors (the amount owed by customers to the business). The debtors on 1/1/06 are D2,600. Therefore, the new provision for bad debts on 31/12/06 would be 5% of D2,600 which is D130. To calculate the provision for bad debts in the profit and loss account, we need to find the increase in provision from 1/1/06 to 31/12/06. This is calculated as: New provision for bad debts - Old provision for bad debts = D130 - D60 = D70 Therefore, the provision for bad debts in the profit and loss account is D70. Option (D) is the correct answer.