Introduction to accounting

3 OBJECTIVE BASED QUESTIONS

01. The opening balance of “allowance for doubtful debts account” is Rs. 1,000 whereas the closing
balance of Receivables account is Rs. 100,000.
What amount of allowance for doubtful debts should be charged to statement of comprehensive
income using a 5% allowance for doubtful debts for the current accounting period?
(a) Rs. 4,000
(b) Rs. 5,000
(c) Rs. 2,000
(d) Rs. 1,000

02. At December 31, 2018 a company’s receivable totaled Rs. 600,000 and an allowance for bad and
doubtful debts of Rs. 60,000 had been brought down from last year.
It was decided to write off the debts totaling Rs. 25,000 and to adjust allowance for receivable @ 10%
of the receivable.
At what amount receivables are to be shown in statement of financial position as at 31 December 2018?
(a) Rs. 572,500
(b) Rs. 517,500
(c) Rs. 540,000
(d) Rs. 575,000

03. A business has closing receivables balance is Rs. 75,000. It includes one of the accounts receivable
named Ali, who is going through financial crisis. It is expected that he can pay 75% of his total debt of
Rs. 5,000. Business has decided to calculate an allowance for doubtful debt at 5%.
What is the amount of allowance to be deducted from receivable in statement of financial position?
(a) Rs. 3,500
(b) Rs. 3,750
(c) Rs. 7,250
(d) Rs. 4,750

04. The nature of “Allowance for doubtful debt” account is:

(a) Contra asset account
(b) Asset account
(c) Expense
(d) Liability account

05. At the end of accounting period, KLM Company finds out that its total Receivables are Rs. 10,000. On
scrutiny of accounts, it turned out that a bad debt amounting to Rs. 1,000 was not recorded in the books
of accounts. Furthermore, having considered the current economic situation, management of the
company decided to increase the allowance for doubtful debts by Rs. 500.
Find out what net amount to be expensed out in the statement of comprehensive income?
(a) Rs. 10,000
(b) Rs. 1000
(c) Rs. 11,000
(d) Rs. 1500

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 Chapter 6: Bad and doubtful debts

06. At January 1, 2017 the allowances for receivable of Sidra was Rs. 35,000. During the year ended 31
December 2017 debts totaling Rs. 15,000 were written off. It was decided that the allowance for doubtful
debts should be Rs. 30,000 as at December 31, 2017.
What amount should be charged to statement of comprehensive income of Sidra for bad and doubtful
debts expense?
(a) Rs. 30,000
(b) Rs. 45,000
(c) Rs. 15,000
(d) Rs. 10,000

07. Which of the following can be most relevant to calculation of allowance for doubtful debts?
(a) Total credit sales
(b) Total credit purchases
(c) Total current assets
(d) Total current liabilities

08. At January 1, 2017 the balance in allowance for receivable showed Rs. 16,000. At the end of the year
it is decided to write off Rs. 9,000 and adjust allowance for receivable to Rs. 18,000.
What will be the effect of this decision on profit for the year?
(a) Decrease by Rs. 27,000
(b) Increase by Rs. 18,000
(c) Decrease by Rs. 11,000
(d) Decrease by Rs. 9,000

09. Sania creates allowance for doubtful debts after considering the length of time the debt remains
outstanding.
She has provided following data as at 31st March 2018

Debt amount Rs. Days outstanding Allowance required

130,000 30 days Nil

75,000 31-60 2%

50,000 Over 60 days 5%

Opening balance of allowance for doubtful debts was Rs. 3,500.

What is the amount to be charged to statement of comprehensive income for the year?
(a) Rs. 4,000
(b) Rs. 3,500
(c) Rs. 500
(d) Rs. 7,500

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Introduction to accounting

10. Which of the following Receivables have highest probability to default on trade debts?
(a) Current month Receivables
(b) Over 90 days old Receivables
(c) 60 to 90 days old Receivables
(d) 30 to 60 days old Receivables

11. A business has received an amount of Rs. 1,000 from a receivable that had been previously written off
as irrecoverable.
What is the correct accounting entry to record the transaction?
(a) Dr Cash 1,000 Cr Bad and doubtful debts expense a/c Rs. 1,000
(b) Dr Cash 1,000 Cr Receivables Rs. 1,000
(c) Dr Statement of comprehensive income Rs. 1,000 Cr Receivables Rs. 1,000
(d) Dr Statement of comprehensive income Cr Cash Rs. 1,000

12. A business has provided following information;

Rs.
Opening receivables 45,000
Credit sales 55,000
Cash sales 10,000
Cash received from customers 35,000
Bad debts written off 2,000
Discount received 3,000

The business maintains allowance at 2% of receivables each year.

What accounting entry is to be passed to record the increase/ decrease of allowance to the statement
of comprehensive income?
(a) Dr Bad and doubtful debts expense Rs. 360 Cr Allowance for doubtful debts Rs. 360
(b) Dr Allowance for doubtful debts Rs. 360 Cr Bad and doubtful debts expense Rs. 360
(c) Dr Bad and doubtful debts expense Rs. 360 Cr Receivables. 360
(d) Dr Receivables Rs. 360 Cr Bad and doubtful debts expense Rs. 360

13. At year end, the receivable balance on 31 March 2019 is Rs. 93,000. This includes a debt of Rs. 1,800
which needs to be written off.
The business maintains allowance for doubtful debts at 5% of Receivable balance. And this year
allowance has increased by 20% as compared to last year.
What was the balance of Allowance for doubtful debts at 1 April 2018?
(a) Rs. 3,875
(b) Rs. 5,472
(c) Rs. 3,800
(d) Rs. 4,560

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 Chapter 6: Bad and doubtful debts

14. At 30 September 2012 a company’s allowance for receivables amounted to Rs. 38,000, which was five
per cent of the receivables at that date.
At 30 September 2013 receivables totalled Rs. 868,500. It was decided to write off Rs. 28,500 of debts
as irrecoverable and, based on past experience, to keep the allowance for receivables at 5% of
receivables.
What should be the charge in the statement of comprehensive income for the year ended 30 September
2013 for the total of bad debts and the allowance for receivables?
(a) Rs. 42,000
(b) Rs. 33,925
(c) Rs. 70,500
(d) Rs. 32,500

15. The allowance for receivables in the accounts at 31 October 2011 was Rs. 9,000. During the year ended
31 October 2012, bad debts of Rs. 5,000 were written off.
The receivables balance at 31 October 2012 was Rs. 120,000 and, based on past experience, the
company wishes to set the allowance at 5% of receivables.
What is the total charge for bad debts and the allowance for receivables in the statement of
comprehensive income for the year ended 31 October 2011?
(a) Rs. 2,000
(b) Rs. 3,000
(c) Rs. 5,000
(d) Rs. 8,000

16. Hamza has following information available for his business for the year ended 31 st December 2017:
Opening allowance for doubtful debts Rs. 5,000
Bad debts written off during the year Rs. 3,000
Bad debts recovered Rs. 1,500
Closing receivables Rs. 90,000
Closing allowance for doubtful debts 5%.

What is the net charge for irrecoverable and doubtful debts for statement of comprehensive income?
Rs. ___________

17. At June 30, 2016 a company’s allowance for receivable amounted to Rs. 25,000 which was 2% of the
trade receivables at that date.
At June 30, 2017 trade receivable amounted to Rs. 310,000. It was decided to write off Rs. 30,000 of
debts as irrecoverable and to keep the allowance for receivable at 2% of trade receivable.
At what amount receivables would be shown in statement of financial position at 30 June 2017?
Rs. ___________

18. At July 1, 2017Mira’s allowance for receivable was Rs. 65,000.

At June 30, 2018 trade receivable amounted to Rs. 650,000. It was decided to write off Rs. 95,000 of
these debts and adjust the allowance for receivable to Rs. 75,000.
At what amount receivables (net) to be appear in statement of financial position?
Rs. ___________

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Introduction to accounting

19. At January 1, 2018 the balance in allowance for receivable showed Rs. 38,000. At the end of the year
it is decided to write off Rs. 16,000 and adjust allowance for receivable to Rs. 35,000.
What will be the charge for irrecoverable and doubtful debts for the year?
Rs. ___________

20. After writing off bad debts, Rashid has outstanding receivables of Rs. 238,750. He identifies two specific
amounts for which he wishes to make full allowance:
 Rs. 450 owing by Syed
 Rs. 1,200 owing by Raja
Rashid also wishes to maintain a general allowance of 5% of outstanding receivables.
What amount is shown on Rashid’s statement of financial position in respect of receivables?
Rs. ___________

21. Which of the following is the effect on net profit if a business decreases provision for doubtful debts?
(a) It will increase net profit
(b) It will decrease net profit
(c) It will increase gross and net profit
(d) No effect

22. What is the nature of allowance for doubtful debt account?

(a) An asset
(b) A liability
(c) An equity
(d) Contra asset account

23. Is there a difference in bad and double debts?

(a) No, they are inter-changeable
(b) Yes, bad debt refers to an account receivable that has been clearly identified as not being
collectible. Whereas a doubtful debt is an account receivable that might become a bad debt at
some point in the future
(c) Yes, doubtful debt refers to an account receivable that has been clearly identified as not being
collectible. Whereas a bad debt is an account receivable that might become a bad debt at some
point in the future
(d) They are synonymous

24. What is the double entry for recording write-off of doubtful debts?
(a) Bad debt expense (debit) and allowance for doubtful debts (credit)
(b) Bad debt expense (debit) and accounts receivable (credit)
(c) Allowance for doubtful debts (debit) and accounts receivable (credit)
(d) None of the above

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 Chapter 6: Bad and doubtful debts

25. On June 1, Rs.800,000 of goods are sold with credit terms of 1/10, n/30. How much should the seller
expect to receive if the buyer pays on June 8?
(a) 720,000
(b) 768,000
(c) 792,000
(d) No change

26. On June 1, Rs.800,000 of goods are sold with credit terms of 1/10, n/30. On June 3, the customer
returned Rs.100,000 of the goods.
How much should the seller expect to receive if the buyer pays on June 8?
(a) 692,000
(b) 693,000
(c) 694,000
(d) 700,000

27. Which account should be credited for Rs180,000 when writing off the account?
(a) Accounts receivable
(b) Allowance for doubtful debts
(c) Bad debts expense
(d) None of the above

28. Sorting a company's accounts receivable into classifications such as current, 1-30 days past due,
and 31-60 days past due etc. is known as the?
(a) Ratio analysis
(b) Trend analysis
(c) Debtor’s analysis
(d) Aging analysis

29. The opening balance of “allowance for doubtful debts account” is Rs.1,000 whereas the closing balance
of Receivables account is Rs.100,000.
What amount of allowance for doubtful debts should be charged to statement of profit or loss using a
5% allowance for doubtful debts for the current accounting period?
(a) Rs.3,000
(b) Rs.4,000
(c) Rs.5,000
(d) Rs.6,000

30. The Allowance for doubtful debts account has a year-end credit balance, prior to adjustment of Rs.500.
The bad debts are estimated at 7% of Rs.60,000 of outstanding accounts receivable.
After the appropriate adjusting entry to recognize the bad debt expense, the Allowance for Doubtful
Accounts should have a ___________ credit balance.
(a) Rs.4,200
(b) Rs.3,700
(c) Rs.3,200
(d) Rs.4,500

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Introduction to accounting

3 OBJECTIVE BASED ANSWERS

01. (a) Closing allowance = Rs. 100,000x5% = Rs. 5,000
Charge to statement of profit or loss = 5,000 - 1,000= Rs. 4,000

02. (b)
Rs.
Closing receivables 600,000 - 25,000 575,000
Closing allowance 575,000x10% 57,500
Carrying amount of receivables 575,000 - 57,500 517,500

03. (d) Closing allowance = (Rs. 75,000 - 5000) x5% = Rs. 3,500 + (Rs. 5,000 x 25%) = Rs.
4,750

04. (a)

05. (d) Expense = Irrecoverable debts + increase in allowance = Rs. 1,000+500= Rs. 1,500

06. (d) Charge = Closing allowance-Opening allowance + debts written off

= Rs. 30,000 - Rs. 35,000 + Rs. 15,000 = Rs. 10,000

07. (a) Allowance for doubtful debts are calculated usually on the basis of receivables.
However, second most reliable amount is of credit sales as debt arises because of
credit sales and then the chance of recoverability is calculated.

08. (c) Expense = Rs. 9,000+ (Rs. 18,000-16,000) = Rs. 11,000 therefore, decrease the
profit by Rs. 11,000

09. (c) Closing allowance =(Rs. 75,000 x 2%) +(Rs. 50,000 x 5%) = Rs. 4,000
Charge to statement of profit or loss = Rs. 500

10. (b) The older the debt, the higher the chances of default.

11. (a) The correct treatment is to reduce the expense previously recognised.

12. (a) Increase in allowance = Closing allowance – opening allowance

= (Rs. 63,000x2%) - (45,000x2%) = Rs. 360
Closing receivables = 45,000 + 55,000 - 35,000 - 2,000 = Rs. 63,000

13. (c) Closing balance of allowance

Rs. 93,000 – 1,800 irrecoverable = Rs. 91,200 x 5% = Rs. 4,560
Opening balance of allowance
Rs. 4,560 x 100/120 = Rs. 3,800

14. (d)
Rs.
Irrecoverable debts 28,500
Allowance c/f (5% × (Rs. 868,500 – Rs. 28,500)) 42,000
Allowance b/f (38,000)
4,000
Increase in allowance 32,500

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 Chapter 6: Bad and doubtful debts

15. (a)
Rs.
Allowance at end of year (5% of Rs. 120,000) 6,000
Allowance at start of year 9,000
Decrease in allowance (3,000)
Irrecoverable debts written off 5,000
Charge to SPL 2,000

16. Rs. 1,000 Closing allowance = Rs. 90,000x5% = Rs. 4,500

Bad debts are not to be deducted because already written off.

Charge for Statement of profit or loss Rs.

Decrease in allowance (Rs. 500)
Irrecoverable debts 3,000
Bad debts recovered (1,500)
Profit or loss 1,000

17. Rs. 274,400 Receivables = (Rs. 310,000-Rs. 30,000) = Rs. 280,000

Carrying amount = Rs. 280,000 – (Rs. 280,000x2%) = Rs. 274,400

18. Rs. 480,000

Rs.
Receivables Rs. 650,000 – 95,000 = 555,000
Less: Allowance (75,000)
480,000

19. Rs. 13,000 = Rs. 16,000 irrecoverable -Rs. 3,000 decrease in allowance =Rs. 13,000

20. Rs. 225,245

Allowance Rs. Rs.
Receivables 238,750
Specific allowance
Syed (450) 450
Raja (1,200) 1,200
General allowance @5% 237,100 11,855
Total allowance 13,505
Receivables (Statement of Financial Position)
Rs. 238,750 – Rs. 13,505 = Rs. 225,245

21. (a)

22. (d)

23. (b)

24. (b)

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Introduction to accounting

f25. (c)

26. (b)

27. (a)

28. (d)

29. (b)

30. (a)

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