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

Sundry Debtors as per the trial balance of Mehta Traders are Rs 80,000, and the opening provision for doubtful debts is Rs 3,000. Adjustments: bad debts of Rs 5,000 not yet written off; maintain provision at 4% on the remaining debtors. What is the total charge to Profit and Loss Account for bad debts and provision (net of the opening provision)?

The charge is Rs 5,000. After writing off Rs 5,000, debtors are Rs 75,000 and a 4% provision is Rs 3,000, which equals the opening provision, so no extra provision is charged. Only the bad debts of Rs 5,000 hit Profit and Loss.

  1. ARs 5,000
  2. BRs 5,000 plus Rs 300 = Rs 5,300Correct
  3. CRs 5,000 plus Rs 200 = Rs 5,200
  4. DRs 4,800

Explanation

Debtors after bad debts = 80,000 - 5,000 = 75,000. Required provision = 4% x 75,000 = 3,000. Opening provision is 3,000, so the net provision change is nil and the P&L charge is only Rs 5,000. Hence the correct total is Rs 5,000. The option given as 5,300 would arise from wrongly computing 4% on 80,000 = 3,200 (change 200) etc.

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