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SSC Financial and Cost Accounting P-1 QUESTION #9620
Question 1
A provision for bad debts is maintained at 5% of year-end debtors. On July 1 the opening provision balance is Rs. 3,400. During the year, bad debts written off total Rs. 5,000. At June 30 the debtors' closing balance (after write-offs) is Rs. 75,000. What is the net charge/credit to the Profit & Loss Account in respect of bad debts and the provision for the year?
  • Charge Rs. 5,350 (bad debts Rs. 5,000 + provision increase Rs. 350)✔️
  • Charge Rs. 5,000 (bad debts only; provision decreases)
  • Credit Rs. 2,650 (net provision release)
  • Charge Rs. 8,750 (bad debts Rs. 5,000 + new provision Rs. 3,750)
Correct Answer Explanation
Required closing provision = 75,000 × 5% = Rs. 3,750. Opening provision = Rs. 3,400. Since the provision must increase, additional provision charged to P&L = 3,750 – 3,400 = Rs. 350. Bad debts of Rs. 5,000 are also charged to P&L. Total P&L charge = Rs. 5,000 + Rs. 350 = Rs. 5,350.