How much is to be charged to profit and loss account as provision for bad debt?

Use the following information to answer this question.

Provision for bad debt 1500

Additional information

1. Bad debt written off amount to 3000
2. Debtors balance as at the end of the year is 28,000
3. Provision for bad debts stand at 10%

A. N2, 800
B. N1, 000
C. N2, 500
D. N3, 000

Correct Answer:

Option B – N1, 000

Explanation

Being that debtors balance minus bad debt written off multiplied by 10% and subtracted from the initial provision

28000 – 3000 = 25,000 X 10% = 2500

:. 2500 – 1500 = 1,000 (increase in provisions)