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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Cycle

Anita Traders has debtors of Rs 2,10,000 before adjustments. Further bad debts of Rs 10,000 are to be written off. A provision for doubtful debts of 5% is to be maintained on the remaining debtors. The old provision was Rs 7,000. What is the net amount debited to the Profit and Loss Account for bad debts and the provision (excluding earlier bad debts)?

The charge is Rs 13,000. Further bad debts of Rs 10,000 are written off, leaving debtors of Rs 2,00,000. The new 5% provision is Rs 10,000, which is Rs 3,000 more than the old provision of Rs 7,000. Adding the write-off and the increase gives Rs 13,000.

  1. ARs 13,000Correct
  2. BRs 10,000
  3. CRs 3,000
  4. DRs 20,000

Explanation

Remaining debtors = 2,10,000 - 10,000 = 2,00,000. New provision = 5% = Rs 10,000. Increase over old provision = 10,000 - 7,000 = Rs 3,000. Total charge = 10,000 bad debts + 3,000 = Rs 13,000. Rs 10,000 omits the provision change, and Rs 20,000 treats the full new provision as an additional charge on top of the write-off.

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