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CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Treatment of Bad Debts and Provision for Doubtful Debts

Sundaram Traders has debtors of ₹1,20,000 before adjustments. Bad debts of ₹10,000 are to be written off. A provision for doubtful debts of 5% and then a provision for discount of 2% on the remaining good debtors are to be created, each computed after the preceding deduction. What is the provision for discount on debtors?

The provision for discount is ₹2,090. Debtors after bad debts are ₹1,10,000; after deducting the 5% doubtful debts provision of ₹5,500 the good debtors are ₹1,04,500, and 2% of this gives ₹2,090.

  1. A₹2,090Correct
  2. B₹2,200
  3. C₹2,400
  4. D₹2,000

Explanation

Debtors after bad debts = 1,20,000 - 10,000 = 1,10,000. Provision for doubtful debts at 5% = 5,500, leaving 1,04,500. Discount at 2% = 2,090. Using 1,10,000 gives 2,200, which ignores the doubtful debts provision.

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