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With the help of following information calculate provisions for bad and doubtful debts
With the help of following information calculate provisions for bad and doubtful debts
Debtors M: Rs. 3,200 Bad to be written off
Debtors N: Rs. 8,000 expeected to realise only 70%
Debtors O: Rs. 6,000 expected to realise only 60%
Debtors P: Rs. 4,000 financial condition very poor, no recovery is likely
Answer & Solution
Correct Answer:
Option
B
Interpretation
The phrase “provision for bad and doubtful debts” requires recognising the entire expected loss from debtors: amounts already identified as bad (to be written off) plus the doubtful portions that are not expected to be recovered
Loss computation debtor-wise
Debtor M: ₹3,200 is bad ⇒ 100% loss = ₹3,200
Debtor N: Expected to realise 70% of ₹8,000 ⇒ loss = 30% × 8,000 = ₹2,400
Debtor O: Expected to realise 60% of ₹6,000 ⇒ loss = 40% × 6,000 = ₹2,400
Debtor P: Financial condition very poor, no recovery ⇒ 100% loss = ₹4,000
Total provision (bad + doubtful)
₹3,200 + ₹2,400 + ₹2,400 + ₹4,000 = ₹12,000
Note
If the requirement were only for a provision against doubtful debts (excluding specific bad debts already written off), it would be ₹2,400 + ₹2,400 = ₹4,800. However, the wording includes both bad and doubtful, so the correct option is ₹12,000
The phrase “provision for bad and doubtful debts” requires recognising the entire expected loss from debtors: amounts already identified as bad (to be written off) plus the doubtful portions that are not expected to be recovered
Loss computation debtor-wise
Debtor M: ₹3,200 is bad ⇒ 100% loss = ₹3,200
Debtor N: Expected to realise 70% of ₹8,000 ⇒ loss = 30% × 8,000 = ₹2,400
Debtor O: Expected to realise 60% of ₹6,000 ⇒ loss = 40% × 6,000 = ₹2,400
Debtor P: Financial condition very poor, no recovery ⇒ 100% loss = ₹4,000
Total provision (bad + doubtful)
₹3,200 + ₹2,400 + ₹2,400 + ₹4,000 = ₹12,000
Note
If the requirement were only for a provision against doubtful debts (excluding specific bad debts already written off), it would be ₹2,400 + ₹2,400 = ₹4,800. However, the wording includes both bad and doubtful, so the correct option is ₹12,000
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LoginSo, we take firstly, 70% of 8000 is 5600. and then we less it from 8000-5600=2400 is not receivable from Debtor N. Secondly, we take 60% of 6000 is 3600, then we less it from 6000-3600=2400 is also not receivable from Debtor O, and lastly Debtor P whole amount 4000 is not receivable.
Then we add the amount which not receivable by the above Debtors are as:
Debtor N = 2400
Debtor O = 2400
Debtor P = 4000
Here the total of above Debtors are = 8800 So the answer is right.