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

Sundaram's debtors on 31 March 2024 were Rs 2,40,000 before writing off further bad debts of Rs 40,000. A provision for doubtful debts of 5% on the remaining debtors is to be created. The old provision was Rs 6,000. What is the net charge to the Profit and Loss Account for bad debts and provision, including the Rs 40,000 written off?

The net charge is Rs 44,000. Debtors after writing off Rs 40,000 are Rs 2,00,000, so the new 5% provision is Rs 10,000. After the old provision of Rs 6,000, the extra charge is Rs 4,000. Adding the Rs 40,000 bad debts gives Rs 44,000.

  1. ARs 44,000Correct
  2. BRs 46,000
  3. CRs 40,000
  4. DRs 50,000

Explanation

Remaining debtors = 2,40,000 - 40,000 = 2,00,000. New provision = 5% of 2,00,000 = 10,000. Increase over the old provision = 10,000 - 6,000 = 4,000. Total charge = 40,000 + 4,000 = 44,000. Rs 50,000 wrongly adds the full new provision without deducting the old one.

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