To prepare the accounts for the years ended 31st December 1997, 1998, 1999, and 2000, we will follow the given information and calculations. Let’s start with the required accounts:
a. Bad Debts Account:
Year Ended | Bad Debts | Provision for | Balance 31st Dec | Written off | Doubtful Debts | C/D
1997 | – | – | 40,000 1998 | 1,000 | – | 31,000 1999 | 2,500 | – | 48,500 2000 | 3,000 | – | 57,500
Total Bad Debts Written off: 6,500
b. Provision for Doubtful Debts Account:
Year Ended | Provision at | Provision made | Balance 31st Dec | the Start (B/F) | during the Year | C/D
1997 | 600 | – | 600 1998 | 600 | 3,000 | 3,600 1999 | 3,600 | 5,000 | 8,600 2000 | 8,600 | 6,000 | 14,600
c. Profit and Loss Account:
Year Ended | Bad Debts | Provision for | Net Loss/ 31st Dec | Written off | Doubtful Debts | Profit
1997 | – | – | – 1998 | 1,000 | 3,000 | (4,000) 1999 | 2,500 | 2,000 | (4,500) 2000 | 3,000 | 1,000 | (2,000)
d. Balance Sheet:
As at 31st Dec | Debtors | Less: Bad Debts | Balance | and Provision
1997 | 40,000 | (40,000) 1998 | 30,000 | (34,000) 1999 | 50,000 | (53,500) 2000 | 60,000 | (71,100)
Note: The balance sheet will also include other assets, liabilities, and equity, but as the provided information is specific to debtors and bad debts, we have only presented that portion.
Please note that the figures for provisions and bad debts are cumulative. The calculations above consider the given balances and the additional provisions and bad debts made during each year based on the provided rate of 10% on the outstanding debtors after deducting bad debts for the period.

Provision for doubtful debts, also known as allowance for doubtful accounts, is an accounting concept used to estimate and account for potential losses due to customers’ unpaid debts. The provision is created to reflect the possibility that some portion of accounts receivable may not be collected.
 
The calculation of provision for doubtful debts typically involves two main components: historical data and judgment. Here’s a general approach:
 
1. Analyze Historical Data:
   – Review past records of bad debts or non-payments by customers.
   – Calculate the historical percentage of bad debts to total sales or accounts receivable.
   – Consider factors such as economic conditions, industry trends, and customer creditworthiness.
 
2. Determine the Provision Rate:
   – Based on the analysis of historical data, determine a provision rate or percentage to apply to the outstanding accounts receivable.
   – The provision rate may vary depending on the level of risk associated with different customer segments or specific accounts.
 
3. Apply the Provision Rate:
   – Multiply the provision rate by the total accounts receivable to calculate the provision for doubtful debts.
   – This provision amount is set aside as an expense on the income statement and as a contra-asset on the balance sheet.
 
It’s important to note that the calculation of the provision for doubtful debts may differ based on accounting standards, industry practices, and company-specific policies. Professional accountants or financial experts should be consulted for accurate and specific guidance regarding provisions for doubtful debts.