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    Lesson 3 Assignment. Intermediate Accounting

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    Victory Barasa
    Short-term marketable securities include stocks, bonds, and other investments that can be quickly bought and sold on open markets. They often have short maturities and fluctuating values due to interest rate or market changes, making them riskier than long-term investments. A bad debt occurs when a debtor does not fulfill their contractual obligations. A provision for bad debts sets aside resources to cover expected unpaid amounts. An under provision has too little set aside, while an over provision allocates too much. The accounting procedure for recovering a bad debt includes crediting the recovered amount to the debtor, debiting cash received, and debiting the bad debts account in the income statement with the credit to profit and loss.

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    Lesson 3 Assignment. Intermediate Accounting

    Uploaded by

    Victory Barasa
    26 views3 pages
    Short-term marketable securities include stocks, bonds, and other investments that can be quickly bought and sold on open markets. They often have short maturities and fluctuating values due to interest rate or market changes, making them riskier than long-term investments. A bad debt occurs when a debtor does not fulfill their contractual obligations. A provision for bad debts sets aside resources to cover expected unpaid amounts. An under provision has too little set aside, while an over provision allocates too much. The accounting procedure for recovering a bad debt includes crediting the recovered amount to the debtor, debiting cash received, and debiting the bad debts account in the income statement with the credit to profit and loss.

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    Intermediate Accounting

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    Short-term marketable securities include stocks, bonds, and other investments that can be quickly bought and sold on open markets. They often have short maturities and fluctuating values due to interest rate or market changes, making them riskier than long-term investments. A bad debt occurs when a debtor does not fulfill their contractual obligations. A provision for bad debts sets aside resources to cover expected unpaid amounts. An under provision has too little set aside, while an over provision allocates too much. The accounting procedure for recovering a bad debt includes crediting the recovered amount to the debtor, debiting cash received, and debiting the bad debts account in the income statement with the credit to profit and loss.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    26 views3 pages

    Lesson 3 Assignment. Intermediate Accounting

    Uploaded by

    Victory Barasa
    Short-term marketable securities include stocks, bonds, and other investments that can be quickly bought and sold on open markets. They often have short maturities and fluctuating values due to interest rate or market changes, making them riskier than long-term investments. A bad debt occurs when a debtor does not fulfill their contractual obligations. A provision for bad debts sets aside resources to cover expected unpaid amounts. An under provision has too little set aside, while an over provision allocates too much. The accounting procedure for recovering a bad debt includes crediting the recovered amount to the debtor, debiting cash received, and debiting the bad debts account in the income statement with the credit to profit and loss.

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    of 3

    Lesson 3:Assignment

    1. What do we mean by short term marketable securities? Give examples.


    Short-marketable securities include stocks, bonds, and other investments that can be quickly
    acquired and sold on open markets. They often have a short time until maturity, and can be quite
    volatile in value due to fluctuations in either interest rates or financial markets. Compared to long-
    term investments with longer maturities and less significant value fluctuations, they are riskier.

    2.   Differentiate between the following

    (a) Bad debts and provision for bad debts

    When a debtor you have a contract with doesn't fulfill their duties under the contract, you are left
    with a bad debt. To deal with these potential future payments that won't be collected, a suitable
    amount of resources must be set aside as a provision for bad debts.

    If no such preparations have been made, the provision for bad debt is likely to have no value on the
    balance sheet, or it may even be negative if the creditor has suffered a loss as a result of the
    transaction.

    (b) Under provision for bad debts and over provision for bad debts.

    If a particular asset has been provided for and it is determined that it has been over provisioned, the
    amount of provisioning will need to be reduced to reflect the asset's drop-in value.

    Example:

    When an extra desk is purchased in a furniture store because it was required, over provisioning will
    take place. This particular desk may lower furniture prices and hence reduce earnings because it
    makes up a sizable share of the tradeable assets.

    As an illustration of over providing, consider the following:

    Rate of return per day

    When calculating a daily rate of return, or DRR, one divides the cash flows from a certain time
    period (such as a week, month, quarter, or year) by an appropriate number of days in the period and
    multiplying that figure by 100%.

    2. Outline the accounting procedure for bad debts recovered.

    1. Make a recovery pledge.

    restores the debtor who was discharged by the retrieved Cr-bad debtors account.

    2. Dr-bank/cash Cr- debtors account when the cash or check is later received in full or in part from
    the reinstated debtor.

    3. In order to balance off the bad debts recovered account, Dr.

    Bad debts account is debited in the income statement's cr. profit and loss.
    4.   For the year ended 31 st Dec 2012,2013 and 2014,the outstanding debtors after bad debts
    were written off were sh.240,000, sh.180,000 and sh.300,000 respectively. The company
    utilizes 5%
          as a provision for doubtful debts.

    Required:-

    (a) Provision for doubtful debts A/C

    (b) Extracts of financial statements for the years ended 31 st Dec, 2012, 2013, and 2014.

    Solution

    Amount of provision for the year ended 30th Dec 2012= 5%*240,000=12,000

    Charge income statement= 12,000

    Amount of provision for the year ended 30th Dec 2013= 5%*180,000=9,000

    Charge income statement= 9,000-12,000= -3000

    Amount of provision for the year ended 30th Dec 2014= 5%*300,000=15,000

    Charge income statement= 15,000-9,000=6,000

    Provision for Bad Debts Account


    shs

    2012

    30th Dec Bal c/d 12,000 30th Dec income statement 2012

    30th Dec Bal c/d 9,000 1 st Jan bal c/d 12,000

    30 th Dec income c/f 3000

    2013 2013

    30th Dec Bal c/d 15,000 1 st Jan bal c/d 9,000

    2014 6,000

    15,000 30th Dec Income statement 15,000

    ABC Company

    Income statement for the year ended 30th Dec

    12 13 14

    Shs shs shs

    Other expenses
    Provision for bad debts (12,000) (3,000) (6,000)

    ABC Company

    Statement of Financial Position

    As at 30th Dec

    Shs shs shs

    Current Assets

    Debtors 240,000 180,000 300,000

    (12,000) (9,000) (15,000)

    228,000 171,000 285,000

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