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CMA Intermediate · Financial Accounting · Final Accounts of Commercial Organisations

Kaveri Ltd. has a trial balance showing Trade receivables Rs 6,00,000 (including Rs 40,000 of bad debts to be written off) and Provision for doubtful debts Rs 18,000 (opening). The company wants a closing provision of 5% on remaining receivables. Receivables of Rs 50,000 are also due beyond six months from the due date and are secured good. What is the net charge to the Statement of Profit and Loss for bad debts and provision, and the net trade receivables shown in the Balance Sheet?

The charge to profit and loss is Rs 50,000 and net trade receivables are Rs 5,32,000. Bad debts of Rs 40,000 plus an extra provision of Rs 10,000 (5% of Rs 5,60,000 equals Rs 28,000, less opening Rs 18,000) give the charge; receivables net of Rs 28,000 provision are Rs 5,32,000.

  1. ACharge Rs 50,000; net receivables Rs 5,32,000Correct
  2. BCharge Rs 50,000; net receivables Rs 5,60,000
  3. CCharge Rs 68,000; net receivables Rs 5,32,000
  4. DCharge Rs 52,000; net receivables Rs 5,32,000

Explanation

Receivables after write-off = 5,60,000. Closing provision 5% = 28,000. Provision charge = 28,000 - 18,000 = 10,000. Total charge = 40,000 + 10,000 = 50,000. Net receivables = 5,60,000 - 28,000 = 5,32,000. The secured-good detail only affects disclosure ageing, not the amount. Rs 68,000 wrongly adds the full provision without netting the opening one.

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