19 Evelym Easter commenced business an 1 July 2008 and at th

19, Evelym Easter commenced business an 1 July 2008, and at the end of each financial year she adjusts the allowance for doubtful debts. The actual percentage rate used is adjusted in accordance with the prevailing economic conditions at the time. The following details are available for the three years ended 3D June 2009, 2010 and 2011 Bad debts written off Accounts receivable at Percentage allowance Year to 30une 30 June after bad debts written-off 65,000 97,500 104,000 for doubtful debts 2C09 2,530 3,708 5,844 Prepare the bad debts accounts and allowance for doubtful debts accounts for each of the three years 2009 to 2011. (b) Show the extracts from the statement of financial position as at 30 June 2009, 2010 and 2011. c) On 1 January 2011, Portland Bay owed Evelyn Easter £1,500. On 15 March 2011 Portland Bay was declared bankrupt. A payment af 4D pence in the pound was received in full settlement. The renaining balance was written off as a bad debt, Write up the account of Portland Bay in Evelyn Easter\'s ledger (d) Distinguish between \'capital and \'revenue expenditure.

Solution

a)

b)

c)

Notes:

1. Allowance for debts is calculated on the debtors after deducting bad debts written off.

2. When a new allowaace for bad debts is to be created, the balance amount after deducting old provision from new provision should be booked as expense for that year.

3.  1 Pound = 100 Pence. So 40 pence means 40%. So 40% is considered as realisable and balance transferred to bad debts expense account.

d) Capital Expenditure is incurred to generate income for a perio of years. Usually capital expenditure is incurred for acquiring or improving fixed assets which are expected to generate cash flows for a long time. Whereas Revenue expenditure is incurred for short term to meet ongoing business requirements like operating expenses, repairs and maintainance expenses and others. Usually revenue expenditure is allowed for tax dedcution in the same year of expenses incurred.

Year	Bad Debts Written off to 30 June(a)	Accounts Receivable at 30 june after bad debts written off(b)	Percentage allowance for doubtful debts( c )	Allowance for Bad Debts(d=b*c)	Accounts Receivable at 30 june before bad debts written off(e=b+a)
2009	2,530.00	65,000.00	2%	1,300.00	67,530.00
2010	3,708.00	97,500.00	5%	4,875.00	1,01,208.00
2011	5,844.00	1,04,000.00	4%	4,160.00	1,09,844.00