PRC-1 · Chapter 5 · Question 23 of 100
If an entity has an opening allowance of Rs. 12,500 and a required closing allowance of Rs. 28,500, what is the net effect of this adjustment on the net profit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Net profit will decrease by Rs. 16,000.
Explanation
The allowance must be increased by Rs. 16,000 (28,500 - 12,500). This increase is recorded as an additional Bad Debt Expense, which consequently reduces the net profit by Rs. 16,000.
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