PRC-1 · Chapter 5 · Question 39 of 100
If an entity receives Rs. 3,000 for a bad debt written off in a prior year, and simultaneously needs to increase its general allowance by Rs. 1,000, what is the net impact on the Statement of Profit or Loss?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Net income of Rs. 2,000
Explanation
The recovery generates an income (or expense reduction) of Rs. 3,000. The allowance increase generates an expense of Rs. 1,000. Net impact: 3,000 (income) - 1,000 (expense) = Rs. 2,000 net income.
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