Question

Opening balance of debtors is Rs. 18,000. 5% provision for bad debts is required to be provided on debtors. If the debtors balance is increased during the year by Rs. 5,000 and the provision for bad debt has a debit balance of Rs. 350 after transferring bad debts, the charge against the profit and loss account is ____________.

• A. Rs.1,950
• B. Rs. 1,500
• C. Rs. 650
• D. Rs. 550

Answer 1

The correct option is B Rs. 1,500

Opening balance of Debtors = Rs. 18000

The closing balance of debtors = Opening debtors + debtors during the year

= Rs. 18000 + 5000

= Rs. 23000

Now, we calculate the provision for bad debts on the Closing debtors.

Hence, Provision for bad debts = $Closingdebtors\times \frac{Rate}{100}$

= $23000\times \frac{5}{100}$

= 1150

The provision for bad debts has a Credit balance and the balance has to be Rs. 1150.

But, as given in the question the Provision for bad debts is showing a debit balance of Rs. 350.

Thus, the amount to be debited to the profit and loss account = 1150 + 350

= Rs. 1500

Thus, the correct option is B.