Dear Friends,
Small suggestion from your end.
One of the client of mine has posed me a question and the facts are as follows
Q) In the balance sheet of his company there are certain debtors where they are not recoverable but pertains to previous years. What exactly he wanted is that to write off those debts without passing through profit and loss a/c for the year. That is he does not want his profit for the year to be effected but he wanted those debts to be written off directly from balance sheet accumulated profits since they are the debts of previous years. He does not want only the profit on the face of the profit and loss a/c to be effected.
A) My suggestion to the above was as follows
Create a reserve for bad debts instead of going for provision for bad debts. This is because of the following
Difference between reserves and provisions is as follows Reserve is an appropriation of profit and provision is a charge on profits. As per Revised Schedule VI Reserve being an appropriation to be shown under the respective notes called Reserves and surplus and not on the face of the profit and loss A/c. So, I suggested them to create a reserve for badadebts instead of going for provision for bad debts. So, that the same can be adjusted from accumulated profits instead of effecting current year profit unlike provision for bad debts.
Let me even make a point here that as per old schedule VI, Reserve for bad debts can be created only if the provision for bad debts exceeds the value of debts. Hope the above said is not a definition for Reserve for Bad debts but a mention. But it says the value in excess of provision for bad debts is to be transferred to Reserve for bad debts.
Let me understand whether the above old schedule value can be inculcated with revised schedule VI, As far as my knowledge is concerned Old schedule VI cannot be interpreted with Revised schedule VI. It is independent of the old schedule VI. And as per revised schedule VI there in nothing mentioned about reserve for bad debts specifically but it only says Other reserves if any.
Please suggest whether the above suggestion and subject is correct.
Great thanks in advance if the above is resolved
CAclubindia
