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CMA Foundation · Fundamentals of Financial and Cost Accounting · Financial Statements of Sole Proprietorship

Sundaram's debtors at year end are Rs 2,00,000 before adjustment. Bad debts to be written off are Rs 10,000. A provision for doubtful debts at 5% on remaining debtors is required. The old provision was Rs 7,000. What is the net charge to Profit and Loss Account for bad debts and provision together?

The net charge is Rs 12,500: bad debts of Rs 10,000 plus an additional provision of Rs 2,500, being the new provision of Rs 9,500 (5% of Rs 1,90,000) less the old provision of Rs 7,000.

  1. ARs 12,500Correct
  2. BRs 10,000
  3. CRs 12,000
  4. DRs 19,500

Explanation

Remaining debtors = 2,00,000 - 10,000 = 1,90,000. New provision = 5% of 1,90,000 = 9,500. Increase over old provision = 9,500 - 7,000 = 2,500. Total charge = 10,000 + 2,500 = 12,500. Option 4 adds the full new provision without netting the old one.

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