CMA Foundation · Fundamentals of Financial and Cost Accounting · Accounting Treatment of Bad Debts and Provision for Doubtful Debts
Sundry debtors of Kaveri Traders on 31 March were ₹2,40,000 and the existing provision for doubtful debts was ₹8,000. It is decided to maintain a provision at 5% of debtors. What amount is debited to the profit and loss account for this provision?
The required provision is 5% of ₹2,40,000, which is ₹12,000. Since a provision of ₹8,000 already exists, only the shortfall of ₹4,000 is charged to profit and loss for the year.
- A₹12,000
- B₹4,000Correct
- C₹8,000
- D₹20,000
Explanation
Required provision = 5% of 2,40,000 = ₹12,000. The existing provision is ₹8,000, so the extra charge is 12,000 − 8,000 = ₹4,000. Debiting ₹12,000 ignores the opening balance of the provision.
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