Reference no: EM133177337

Question - Kabete Ltd sold goods worth Sh.750, 000 on credit and offered its customers a trade discount of 10% of the gross sales. The sales were made under the credit terms 1.75/10, n/30. Some customers representing 12% of the net receivables paid within the first 10 days after the sale. The remaining debtors were treated as follows: The first 28% were sold away to a factor without recourse who paid everything except 811.1 1,000 that represented the factoring cost and Sh.45,000 retention money that was receivable after the expiry of 30 days. The next 35% were converted into bills receivable. Sh.92,000 of these bills were discounted after ten days at Sh.88,000 while the rest were collected upon maturity except Sh.35,000 worth of bills receivable that were dishonoured after accruing an interest of Sh.2 500.The remaining accounts receivables were allowed to run to their maturity. The provision for bad and doubtful debts was increased by Sh.5,500 because of this category of accounts receivables. All the customers under this category paid their dues to Kabete Ltd by the end of the credit period except an account receivable of Sh.17, 500 that was written off as bad and unrecoverable.

i. Identify and explain two important GAAPs Kabete Ltd would rely on when providing for bad and doubtful debts.

ii. Prepare journal entries to record the above transactions if the retention money was subsequently received after expiry of the credit period.