CBSE Class 11-commerce Answered
How do we find out the new provision ??
Asked by Savidars123 | 07 Dec, 2018, 07:04: PM
Expert Answer
The concept can be understood with help of an example.
E.g. An extract of Trial Balance as on Dec. 31, 2017 provides for following:
Debtors | 5,200 |
Provision for Doubtful Debts as on Jan. 01, 2017 | 500 |
Bad Debts | 750 |
Adjustments:
(i) Further bad debts amounts to Rs 200
(ii) Create provision for doubtful debts at the rate of 5% on debtors.
Explanation:
In this question, provision for doubtful debts as on January 01,2017 is the old provision and bad debts during the same year were Rs 750. In addition to this we have been asked to create a provison for doubtful debts at the rate of 5% on debtors. Also, at the end of the year it has been witnessed that there are additional bad debts of Rs 200.
In this case the amount of provision for bad debts would be calculated by debiting amount of further bad debts from debtors and calculating given percentage of provision on remaining debtors.
(5,200 - 200) x 5% = 250
This provision is added to bad debts amount in the P&L and deducted from debtors in the Balance Sheet.
Answered by | 10 Dec, 2018, 11:57: AM
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