Question 1 of 35intermediate🔧 ApplyMCQ1 mark

Rahul’s trial balance provide you the following information: Debtors ₹ 80,000 Bad debts ₹ 2,000 Provision for doubtful debts ₹ 4,000 It is desired to maintain a provision for bad debts of ₹ 1,000 State the amount to be debited/credited in profit and loss account:

Exercise: Test Your Understanding | Q: 1 | (Page 22)
For More Understanding

Explanation

The correct option is (C) ₹ 1,000 (Credit). This is because the total of bad debts and the new provision (₹ 2,000 + ₹ 1,000 = ₹ 3,000) is less than the existing old provision of ₹ 4,000. According to the adjustment format shown in the context, when the old provision exceeds the sum of bad debts and new provision, the excess amount is credited to the Profit and Loss Account.

Solution Steps

  1. Step 1: Calculate the total of Bad Debts and New Provision: ₹ 2,000 (Bad Debts) + ₹ 1,000 (New Provision) = ₹ 3,000.

  2. Step 2: Compare this total with the Old Provision: ₹ 4,000 (Old Provision) - ₹ 3,000 (Total calculated) = ₹ 1,000.

  3. Step 3: Since the Old Provision (₹ 4,000) is greater than the required amount (₹ 3,000), the Profit and Loss Account is credited with the difference of ₹ 1,000.

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