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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Treatment of Bad Debts and Provision for Doubtful Debts

Ganga Enterprises had an opening provision for discount on debtors of ₹3,000. At year end, debtors are ₹2,00,000 and provision for doubtful debts is ₹10,000. A provision for discount of 2% on good debtors is required. What amount is charged to the Profit and Loss Account for this provision?

The charge is ₹800. Required closing provision is 2% of good debtors of ₹1,90,000, which is ₹3,800. Since ₹3,000 already exists from the opening provision, only the additional ₹800 is debited to the Profit and Loss Account.

  1. A₹800Correct
  2. B₹3,800
  3. C₹4,000
  4. D₹3,000

Explanation

Good debtors = 2,00,000 - 10,000 = 1,90,000. Required provision = 2% = 3,800. Opening provision is 3,000, so the additional charge is 3,800 - 3,000 = 800. Charging 3,800 ignores the opening balance.

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