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CMA Foundation · Fundamentals of Financial and Cost Accounting · Adjustment Entries and Rectification of Errors

On 1 April 2024, Mehta Ltd. had a Provision for Doubtful Debts of Rs 14,000 and a Bad Debts Recovered account is not yet recorded. During 2024-25 bad debts written off were Rs 9,000, and Rs 3,000 was recovered from a debtor written off earlier. Closing debtors are Rs 1,60,000 and a provision of 10% is required. What net charge appears in the Profit and Loss Account for bad debts and provision?

The net charge is Rs 8,000. Bad debts of Rs 9,000 and an additional provision of Rs 2,000 (closing Rs 16,000 less opening Rs 14,000) are expenses, while the recovery of Rs 3,000 is a gain that reduces the net charge.

  1. ARs 8,000Correct
  2. BRs 11,000
  3. CRs 14,000
  4. DRs 5,000

Explanation

Required closing provision = 16,000; opening = 14,000, so additional provision = 2,000. Net charge = bad debts 9,000 + additional provision 2,000 - recovery 3,000 = Rs 8,000. Rs 11,000 ignores the recovery.

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