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CMA Foundation · Fundamentals of Financial and Cost Accounting · Bills of Exchange

Mohan holds a bill of Rs 50,000 accepted by Kiran. Kiran is declared insolvent before the due date and the bill is dishonoured. Mohan receives 40 paise in the rupee from Kiran's estate. What is the amount of loss Mohan must debit to the Deficiency (Bad Debts) Account?

The loss is Rs 30,000. Mohan recovers 40 paise per rupee, i.e. Rs 20,000 of the Rs 50,000 bill, so the unrecovered balance of Rs 30,000 is written off as a bad debt or deficiency.

  1. ARs 20,000
  2. BRs 30,000Correct
  3. CRs 50,000
  4. DRs 10,000

Explanation

Mohan receives 0.40 x 50,000 = Rs 20,000. The loss is 50,000 - 20,000 = Rs 30,000. Rs 20,000 is wrong because it is the amount received, not the loss.

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