The provision for DD doesn’t work this way for contracting type...

The provision for DD doesn’t work this way for contracting type businesses.

in general if you have large small receivable balances where you don’t have a debtor which makes up a material balance of trade receivables a common way of estimating uncollectible debt is by attributing a % estimate of receivables at year end which you believe is a fair provision such as 3%

For businesses with a smaller number of debtors who make up a larger % of the trade receivables balance they are individually assessed based on days outstanding of debt and communication with debtors on why they have not paid. For example it could be that work done was inadequate hence debtor withholding payment.

In this case EHL provision will not include the 32 Mill and at half year management will recognise a estimate of what they believe is uncollectible. The entry will be:

Bad debts
Allowance for doubtful debts

bad debts is a P&L account which reduces profit and the allowance is a balance sheet account which reduces trade receivables

The only benefit EHL will get out of this is that the bad debt write off will be tax deductible as when it is confirmed