CIE Accounting Paper-2: Specimen Questions 59 - 60 of 103

Passage

Fancy dresses show the following information as on 31.12. 2012.

Debtors- £164000, Bad debts during the year 2012 amounts to £4000, Bad debts for the year 2013 amounts to £2000. Provision for bad and doubtful debts in 2012 is £5000 and for the year 2013 [email protected]%. Discount allowed in 2012 is £2000 and for the year 2013 a provision for discount on debtors is [email protected]%.

Question number: 59 (2 of 5 Based on Passage) Show Passage

Essay Question▾

Describe in Detail

What are the adjustment entries that Fancy dresses would pass in their books of accounts?

Explanation

Journal entries in the books of Fancy dresses for the year 2012

shows table in Journal entries in the books of Fancy dresses for the year 2012

DATE

PARTICULARS

LF

DEBIT AMT

CREDIT AMT

31.12. 2012

Profit & Loss A/c Dr

2000

To New Bad debts A/c

2000

(Being new bad debts accounted for

31.12. 2012

Profit & Loss A/c Dr

8100

To Provision for doubtful debts A/c

8100

(Being provision for doubtful debts created)

31.12. 2012

Profit & Loss A/c Dr

3078

To provision for discount on Debtors

3078

(Being provision fordiscount on debtors created)

Question number: 60 (3 of 5 Based on Passage) Show Passage

Essay Question▾

Describe in Detail

What is the need for Fancy dresses to create a provision for bad and doubtful debts for the next accounting year in the current year itself?

Explanation

In the accounting system, the convention of conservatism is followed. According to this system, the business should foresee its loss in the future and make provisions for it, but however the future profits should not be accounted for. Similarly Fancy dresses as per the convention of conservatism provides for its doubtful debts for the next accounting year in the current year itself. Doubtful debts refer to those debts whose payments may or may not be received. As the goods are sold in the current year it is essential to make the provision also in the current year itself.

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