Question

Anton Blair is the manager of a medium-size company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendation to the accountant for year-end adjustments. One of his favorite recommentdations is for the controller to reduce the estimate of doubtful accounts.

1. What effect will lowering the estimate for the allowance for doubtful accounts have on the company's net income and Blair's bonus?
2. Does Blair's recommendation to the company controller represent an ethics violation?  
3. How should the controller respond to Blair's request?

Answer 1

Doubtful debts—The debts which will be receivable or not cannot be ascertainable at the date of preparing the final accounts.Provision for doubtful debts made against Profit and lossAccount on the basis of past experiences. provision should be calculated on the basis of certain percentages on total doubtful debts after adjusting bad debts. It is nothing but a loss of the current year which actually written off in the next year. This is done on the reason that the amount of loss is impossible to ascertain until it is proved bad.so it is against the accounting et