Home For AAT student members AQ 2013 AAT Level 3 (Level 6 in Scotland)
Current updates regarding coronavirus (Covid-19) and the precautions AAT are taking will be continually updated on the below page.

Please check this link for the latest updates:
We hope you are all safe and well and if you need us we will be here. 💚

Depreciation and bad debts

yorkshirelassyorkshirelass Settling In NicelyAAT Student Posts: 17

I am doing an assignment in which i have been told the balance of equipment is DR 58,000 and accumulated depreciation is CR£19000

i have been told to depreciate equipment at 15% per annum.

how would this be dealt with in thew adjustments column in the ETB and balance sheet

so far i have Cr 8700 Accumulated depreciation adjustments column

Dr 8700 Depreciation adjustment

Cr 27700 accumulated depreciation Balance Sheet

now sure if my adjustments are right?

also how would you deal with the depreciation when it comes to writing up the balance sheet?

I also have been told that Bad debts expense is DR 877
Provision for bad debts is CR 130
and Debtors is DR 12120

i am then told that the provision for bad debtors is to be increased by £40

so this is what i have done

Provision for bad debts Dr 40 (Adjustments column)
Provision for doubtful debts: adjustment CR 40

Provision for bad debts CR 170 Balance sheet

again not sure if this right and how i deal with the bad debts when writing up the balance sheet?



  • sharonjsharonj Well-Known Registered Posts: 166
    I think you need to credit the provision for doubtful debts acc and debit the adjustment acc, this then increases the amount in the provision for bad debts acc to 170 which is the figure you've quoted which is correct.

    All of your other entries look fine to me based on the short test that I did.

    As for how you deal with the depreciation when writing up the balance sheet you start off with the cost amount of the fixed asset on the left, then in the middle column you have the accumulated depreciation to date (including the adjusted amount that has been added on for the cost of depreciation for this year) and then on the right you have the net which is the cost less dep'n to date.

    As for the provision for doubtful debts, this is listed under current assets. You have your debtors amount and then underneath you would write "less provision for doubtful debts". Your debtors figure is adjusted to a lesser amount to allow for the possibility of current debts possibly going bad. The amount that you have increased the provision by would be included on the p and l account as an overhead cost for the year.

    Hope that is easy enough to understand. I think thats right.

  • yorkshirelassyorkshirelass Settling In Nicely AAT Student Posts: 17
    Hi Sharon,

    that does make a lot of sense, but in the balance sheet, u said, the debtors amount is adjusted to a lesser amount to allow for the possibility of current debts going bad, so what amount would debtors be reduced to? would it be £170 the provision for bad debts figure, or am i missing sth?

    also i did the depreciaition on the balance sheet as u said and this is what i got

    Fixed Assets £ £ £

    Cost Provision for depn Net

    Equipment 58000 8700 49,300

    is that right?

    also in this assignment, there are no long term liabilities, so woukld qe not show that on the balance sheet?

    thanks you
  • sharonjsharonj Well-Known Registered Posts: 166
    Hi there

    Under current assets you would start with closing stock valuation then under that the debtors figure and then underneath that you would quote less provision for doubtful debts (in this case less £170) and the amount you have allowed for this. You would therefore deduct £170 from the debtors figure and then the amount less the £170 would be carried forward to be added to the value of any other current assets ie prepayments, cash etc etc.

    The equipment cost would be 58000 but the provision for depreciation wouldn't only be the depreciation cost for this year it would be the provision for depreciation to date so that the balance sheet reflects the true worth of the fixed asset as it has already depreciated over a couple of years and would not be worth any where near as much as the cost price. The provision for depreciation amount to be quoted on the balance sheet would be 27700 and the net would be 30300.

    With regard to there being no long term liabilities you would just not need to quote it if there aren't any. You would only have current assets less current liabilities to give you your net current assets(working capital). You would then add this figure to the net value of the fixed assets to obtain the value of the total net assets.

    Hope this makes sense.

  • yorkshirelassyorkshirelass Settling In Nicely AAT Student Posts: 17
    HI Sharon

    that makes a lot of sense and has hit it right on the nail for me now, i got my net assets and closing capital to equal to £51179, so hope that is correct and my net profit on my P&L account to be £5888. i think i am finally done now and can submit this, touch wood, thanks so much for yr help

  • sharonjsharonj Well-Known Registered Posts: 166
    Yep, that's what I had. Good luck.
Sign In or Register to comment.