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CMA Intermediate · Financial Accounting · Final Accounts of Commercial Organisations

Mehta Enterprises has debtors of Rs 2,00,000 before adjustments. It wants to write off bad debts of Rs 10,000 and then maintain a provision for doubtful debts at 5% on the remaining debtors. The existing provision in the books is Rs 6,000. What total charge for bad debts and provision appears in the Profit and Loss Account, and what are the debtors shown in the Balance Sheet (net of provision)?

The charge is Rs 13,500 and net debtors are Rs 1,80,500. Bad debts of Rs 10,000 plus the provision increase of Rs 3,500 (new Rs 9,500 less old Rs 6,000) give the charge; debtors of Rs 1,90,000 less the Rs 9,500 provision give the balance sheet figure.

  1. ACharge Rs 13,500; net debtors Rs 1,80,500Correct
  2. BCharge Rs 13,500; net debtors Rs 1,90,000
  3. CCharge Rs 19,500; net debtors Rs 1,80,500
  4. DCharge Rs 9,500; net debtors Rs 1,80,500

Explanation

Debtors after write-off = 1,90,000. Required provision = 5% = 9,500. Increase in provision = 9,500 - 6,000 = 3,500. Total charge = 10,000 + 3,500 = 13,500. Net debtors = 1,90,000 - 9,500 = 1,80,500. Rs 19,500 wrongly adds the full provision without netting the old one.

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