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CA Intermediate · Advanced Accounting · Financial Statements of Companies

Gupta Traders Ltd shows gross trade receivables of ₹40,00,000 at the year-end. Of this, ₹5,00,000 has been outstanding for more than six months and is considered doubtful, against which the company has made a provision of ₹3,00,000. The rest is unsecured and considered good. What net amount of trade receivables will be reflected in the Balance Sheet after deducting the provision?

The net trade receivables are ₹37,00,000. Gross receivables of ₹40,00,000 are reduced only by the provision for doubtful debts of ₹3,00,000 that the company has actually made, not by the full ₹5,00,000 of debts regarded as doubtful.

  1. A₹35,00,000
  2. B₹37,00,000Correct
  3. C₹40,00,000
  4. D₹43,00,000

Explanation

Trade receivables are shown as secured good, unsecured good and doubtful, with the provision for doubtful debts deducted. Net = ₹40,00,000 − ₹3,00,000 = ₹37,00,000. Deducting the entire doubtful ₹5,00,000 (₹35,00,000) is wrong, as only the provision made reduces the amount.

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