Final accounts
This query is : Resolved
18 August 2011
Sir
In the balance sheet, always the new provision for bad debt is deducted from the Debtors and then provision for discount on debtors is calculated on it.
but when old provision exceed bad debt and we have to create new provision which will be calculated on (Debtors-bad-debts).
then new provision automatically includes surplus old provision which is deducted from pr. year debtors for calculating pr. year provision on discount on debtors.
so, this means double deduction of surplus provision in current year.
so, i think that we have to deduct current year provision for calculating provision on discount on debtors instead of new provision.
for ex.
debtors= 200000(at the end of year)
bad-debt= 3600
provision on doubtful debt(1-4-20xx)= 7500
Adjustments:
1.)further bad debts= 2000
2.)we have to create new provision for doubtful debts @5% on debtors.
therefore, new provision is calculated as
200000-2000= 198000
198000O*5%= 9900.
therefore current year provision is Rs.8000.
but 7500-3600-2000= 1900 i.e surplus
surplus+C.Y provision
1900+8000= 9900
i.e it includes surplus resulting in double counting for calculating provision for discount on debtors.
because 7500 includes 1900 which is ded. previously and also includes in 9900 and ded. in c.y also.
why.......................................
In the balance sheet, always the new provision for bad debt is deducted from the Debtors and then provision for discount on debtors is calculated on it.
but when old provision exceed bad debt and we have to create new provision which will be calculated on (Debtors-bad-debts).
then new provision automatically includes surplus old provision which is deducted from pr. year debtors for calculating pr. year provision on discount on debtors.
so, this means double deduction of surplus provision in current year.
so, i think that we have to deduct current year provision for calculating provision on discount on debtors instead of new provision.
for ex.
debtors= 200000(at the end of year)
bad-debt= 3600
provision on doubtful debt(1-4-20xx)= 7500
Adjustments:
1.)further bad debts= 2000
2.)we have to create new provision for doubtful debts @5% on debtors.
therefore, new provision is calculated as
200000-2000= 198000
198000O*5%= 9900.
therefore current year provision is Rs.8000.
but 7500-3600-2000= 1900 i.e surplus
surplus+C.Y provision
1900+8000= 9900
i.e it includes surplus resulting in double counting for calculating provision for discount on debtors.
because 7500 includes 1900 which is ded. previously and also includes in 9900 and ded. in c.y also.
why.......................................
27 September 2011
brother mohit, u r unnecessarily confused on the same because of not clear about the meaning of provision
27 September 2011
The illustration which u gave is bookish illustration, not a practical one, but i wud make u clear the concept
27 September 2011
Look, the provision on Bad Debt is created to meet the anticipated Bad Debts of the next year, which have been earned on the current year income
27 September 2011
As per the matching concept of accounting, the current year expenses are required to be met out of current year income i.e. Debtor which are appearing in the Balance sheet are genrally created out of the sales made in the current year
27 September 2011
If the opening provision as on 1-4 xx was 7500 so it was anticipated that out of debtor as on 1-4-xx, the bad debt will arise in the next year
27 September 2011
The Bad debt for which we created opening bad debt provion must arise in the next year so Bad Debt of Rs 3600 arises out of the debtors as on 1-4-xx
27 September 2011
Since the P/L a/c of previous year have already suffered or expenses in the name of provision have already been debited by following JV
P/L A/c DR 7500
To Prov for Bad Debts 7500
P/L A/c DR 7500
To Prov for Bad Debts 7500
27 September 2011
So when the Bad Debts of Rs 3600 happened in the next year, it is not the expenditure of next year, but the expenditure of previous year for which the provision was already booked
27 September 2011
Therefore JV to be passed when the Bad Debt arise wud be
Bad Debt A/c DR 3600
To Debtor 3600
Bad Debt A/c DR 3600
To Debtor 3600
27 September 2011
Since the expenses was already booked in the name of provision
this Bad Debt will not be transferred to P/L A/c it wud be transferred to Proviosion for Bad Debt and JV be
Provion for Bad Debt DR 3600
To Bad Debt A/c
this Bad Debt will not be transferred to P/L A/c it wud be transferred to Proviosion for Bad Debt and JV be
Provion for Bad Debt DR 3600
To Bad Debt A/c
27 September 2011
Now, the question arises about Further Bad Debt of RS 2,000, it is nothing but a information given to you that Bad Debt worth Rs 2,000 have not been booked during the year. This has not been accounted in the information which is given to you.
27 September 2011
now, u r required to account the same in your books
The reqd JV wud b
Bad Debts A/c DR 2000
To Debtors A/c 2000
The above entry will reduce the Debtor Balance and thats why Rs 2000 are deducted from the Debtors
This means the balance after Bad debt entry wud be Rs 1,98,000.
The reqd JV wud b
Bad Debts A/c DR 2000
To Debtors A/c 2000
The above entry will reduce the Debtor Balance and thats why Rs 2000 are deducted from the Debtors
This means the balance after Bad debt entry wud be Rs 1,98,000.
27 September 2011
Therefore new Provison is reqd to b calculated on Rs 1,98,000 as it is the corrected Debtor's Balance
New prov = Rs 198000* 5 % = Rs 9,900
New prov = Rs 198000* 5 % = Rs 9,900
27 September 2011
The additional balance of Rs 2000 bad Debt is also to be charged to Provion for Bad Debt.
The JV wud b
Provion for Bad Debt DR 2000
To Bad Debt A/c 2000
The JV wud b
Provion for Bad Debt DR 2000
To Bad Debt A/c 2000
27 September 2011
After incorporating all the above entries the balance of all a/c wud be
Prov for Bad Debt - (Rs 7500-Rs 3600-Rs 2000) => Rs 1,900
Debtors => 1,98,000
I hope u agreed to the above
Prov for Bad Debt - (Rs 7500-Rs 3600-Rs 2000) => Rs 1,900
Debtors => 1,98,000
I hope u agreed to the above
27 September 2011
The closing provion is reqd to be 9900 but we already had a balance of Rs 1,900 in the provion a/c so we are reqd to made an additional provion of Rs 8,000 which will meet our requirement of creating closing provision of Rs 9,900
27 September 2011
If the Bad Debts in the current year hv exceeded Rs 7500, then athe additional Bad Debts must have been charged to P/L a/c directly or the provision for the same may be created and then the closing provision to be calculated.
27 September 2011
Therefore in such case provision created for current year wub be => Old provision felt short + closing provion reqd.
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