Accounting 0452 · IGCSE · Irrecoverable debts and provision for doubtful debts

Irrecoverable debts and provision for doubtful debts — practice question

Logan is a trader selling goods on credit, and his year end falls on 30 September. Logan has given the following details. At 1 October 2022: Inventory $8400 Trade receivables $7500 Other receivables (rent prepaid) $820 For the year ended 30 September 2023: Rent charge for the year $4940 Bank payments for rent: 1 December 2022 $2460; 1 June 2023 $2490 At 30 September 2023: Inventory $8675 Trade receivables $8700 Other receivables ? Irrecoverable debts to be written off $325 The provision for doubtful debts is to be kept at 4% of trade receivables.
(a)[3]

Prepare the inventory account for the year ended 30 September 2023.

(b)[4]

Prepare the provision for doubtful debts account for the year ended 30 September 2023. Balance the account at 30 September 2023, then carry the balance down to 1 October 2023.

(c)[6]

Prepare the rent payable account for the year ended 30 September 2023. Balance the account at 30 September 2023, then bring the balance down to 1 October 2023.

(d(i))[1]

State how the prudence principle is applied in Logan’s inventory valuation.

(d(ii))[1]

State how the matching principle is applied when preparing the rent payable account.

(e)[5]

Advise Logan whether he should buy business premises using a long-term bank loan. Support your answer with advantages and disadvantages of buying business premises using a long-term bank loan.

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