Question

Extracts of Trial Balance as at 31st March, 2017:

	Dr. (₹)	Cr. (₹)
Sundry Debtors (including Dewan for dishonoured bill of ₹ 20,000)	4,80,000	–
Provision for Doubtful Debts	–	24,000
Bad Debts	10,000	–

Adjustments:
(i) $\frac{3}{4}\mathrm{th}$ of Dewan's bill is irrecoverable.
(ii) Create a provision of 6% on Sundry Debtors.
Show the effect on Profit and Loss Account and Balance Sheet.

Answer 1

Profit and Loss Account for the year ended March 31, 2017
Dr.						Cr.
Particulars			Amount (Rs)	Particulars	Amount (Rs)
Old Bad Debts		10,000
Add: Further Bad Debts		15,000
Add: New Provision		27,600
Less: Old Provision		24,000	28,600

Balance Sheet as on March 31, 2017
Liabilities	Amount (Rs)	Assets		Amount (Rs)
		Current Assets
		Debtors	4,80,000
		Less: Bad Debts	15,000
		Less: Provision for Doubtful Debts	27,600	4,37,400

Working Note:

WN1: Calculation of Provision for Doubtful Debts
$$\begin{gathered} \begin{array}{ccl}\mathrm{Provision}\mathrm{}\mathrm{for}\mathrm{}\mathrm{Doubtful}\mathrm{}\mathrm{Debts}\mathrm{}& =& \left(\mathrm{Sundry}\mathrm{}\mathrm{Debtors}\mathrm{}-\mathrm{Further}\mathrm{}\mathrm{Bad}\mathrm{}\mathrm{Debts}\mathrm{}-\mathrm{Amt}.\mathrm{}\mathrm{recoverable}\mathrm{}\mathrm{from}\mathrm{}\mathrm{Dewan}*\right)\times \frac{\mathrm{Rate}}{100}\\ & =& \left(4,80,000-15,000-5,000\right)\times \frac{6}{100}=\mathrm{Rs}27,600\end{array} \\ *\mathrm{Provision}\mathrm{}\mathrm{is}\mathrm{}\mathrm{to}\mathrm{}\mathrm{be}\mathrm{}\mathrm{maintained}\mathrm{}\mathrm{on}\mathrm{}\mathrm{Debtors}\mathrm{}\mathrm{other}\mathrm{}\mathrm{than}\mathrm{}\mathrm{Dewan} \end{gathered}$$