BAC1 (BSM 1313)
2004/2005
Supplementary Continuous Assessment

Question 2

IVE Bookstore sells books and magazines for cash or on credit. On 1 June
2001, the Company's accounting records showed that the balance of a
debtor called Next Chapter Ltd was $2,000. On 23 June 2001, IVE
Bookstore collected $700 from Next Chapter Ltd. This was the last
payment made and it was unable to make further payment thereafter.

The Company had also got three other debtors who were in financial
difficulties and were unable to settle the money owed to IVE Bookstore.
The amount due to IVE Bookstore were as follows:

$

Jubilee Ltd 130

Logo Ltd 560

Rex Ltd   400

The chief accountant decided to write off these debts from the book at the
year end date of 30 June 2001. IVE Bookstore also decided to start to make
a general provision for doubtful debts based on 10% of all outstanding
debtors at the end of the financial year. Debtors outstanding for the financial
years were:

30 June 2001: $22,860

30 June 2002: $32,470

30 June 2003: $28,750

Required:

(a) Prepare the following accounts balance for the year ended 30 June 2001
(i)   Debtor - Next Chapter Ltd                     ( 4 marks)
(ii)  Bad Debts                                    ( 6 marks)

(b) Prepare the Provision for Doubtful Debts account for the period from
30 June 2001 to 1 July 2003, bringing down the balance at the end of
each financial year.                                    (14 marks)

(c) Show how the Debtors account and Provision for Doubtful Debt
account would appear in the Balance Sheets of IVE Bookstore at 30
June 2002 and at 30 June 2003.                          (6 marks)
(Total 30 marks)

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