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

Kapoor Enterprises had the following on 31 March: sundry debtors Rs 3,50,000 (before adjustments); bad debts written off during the year Rs 10,000 already recorded; further bad debts to be written off Rs 20,000; opening provision for doubtful debts Rs 22,000, of which bad debts recorded during the year of Rs 10,000 were NOT adjusted against it. Provision required is 6% on remaining debtors. Debtors of Rs 3,50,000 already exclude the Rs 10,000 written off. What is the total charge to the Profit and Loss Account for bad debts and provision together for the year, treating the provision account as a single balance of Rs 22,000?

The total charge works out to Rs 27,800. Bad debts of Rs 30,000 are charged, and the provision falls from Rs 22,000 to Rs 19,800, which is 6% of Rs 3,30,000. The Rs 2,200 reduction is credited, leaving a net charge of Rs 27,800.

  1. ARs 28,000
  2. BRs 31,800
  3. CRs 29,800Correct
  4. DRs 19,800

Explanation

Bad debts total = 10,000 + 20,000 = 30,000. Remaining debtors = 3,50,000 - 20,000 = 3,30,000. Required provision = 6% = 19,800. Provision change = 19,800 - 22,000 = 2,200 reduction. Total charge = 30,000 - 2,200 = 27,800. Checking the options: none equals 27,800 except by error, so recheck: the charge is 27,800, not listed; answer key must be corrected.

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