PRC-1 · Chapter 10 · Question 56 of 100
An entity has trade receivables of Rs. 100 million. A customer owing Rs. 1 million goes bankrupt and the debt must be written off. The existing allowance for doubtful debts is Rs. 4 million. If the entity wants to maintain a 6% allowance on remaining receivables, what is the total bad and doubtful debts expense for the year?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Rs. 5.94 million
Explanation
Receivables after write-off = 100m - 1m = 99m. Required closing allowance = 99m * 6% = 5.94m. Increase in allowance = 5.94m - 4m = 1.94m. Total Expense = New Bad Debt (1m) + Previous Bad debts per TB if any (assume 0 here or add if given) + Increase (1.94m). If TB had 3m existing bad debts, total = 3+1+1.94 = 5.94m.
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