CA Foundation · Accounting · Bills of Exchange and Promissory Notes
Sharma Enterprises holds a bill of ₹40,000 accepted by Verma, who becomes insolvent. His estate pays 45 paise in the rupee in full settlement. What is the amount of bad debt to be debited by Sharma Enterprises on the dishonoured bill?
The bad debt is ₹22,000. Verma's estate pays 45 paise per rupee, so Sharma Enterprises recovers ₹18,000 out of ₹40,000. The unrecovered balance of ₹22,000 is the loss and is debited to Bad Debts account, with Verma's account credited.
- A₹18,000
- B₹22,000Correct
- C₹40,000
- D₹45,000
Explanation
Amount received = 40,000 × 0.45 = ₹18,000. Loss = 40,000 − 18,000 = ₹22,000, which is written off as bad debt. ₹18,000 is the amount recovered, not the loss.
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