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CMA Intermediate · Financial Accounting · Accounting Fundamentals

Meera Stores has Sundry Debtors of Rs 2,00,000 before adjustments. Bad debts of Rs 10,000 are yet to be written off, and the firm wants a provision for doubtful debts at 5% on the remaining debtors. The old provision balance is Rs 6,000. What is the total charge to the Profit and Loss Account for bad debts and provision for the year (bad debts plus the net change in provision)?

The total charge is Rs 13,500. Bad debts of Rs 10,000 are written off first, leaving debtors of Rs 1,90,000. The 5% provision is Rs 9,500, and since the old provision was Rs 6,000, only Rs 3,500 more is charged. Adding the two gives Rs 13,500.

  1. ARs 13,500Correct
  2. BRs 14,500
  3. CRs 19,500
  4. DRs 9,500

Explanation

Debtors after bad debts = 2,00,000 - 10,000 = 1,90,000. New provision = 5% x 1,90,000 = 9,500. Net increase over old provision = 9,500 - 6,000 = 3,500. Total charge = 10,000 + 3,500 = Rs 13,500. Computing 5% on Rs 2,00,000 gives a wrong provision of Rs 10,000.

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