Following is the trial balance of a firm as on 31.03.2022 :
| Trade receivables |
Rs 2,50,000 |
|
| Provision for discount to debtors |
|
Rs 14,000 |
| Discount to debtors |
Rs 4,000 |
|
Additional discount allowed to debtors during the year is Rs 20,000. The firm has a policy of maintaining a provision for discount to debtors equal to 10% of the Trade Receivables' balances. Total amount to be charged to Profit and Loss Account (for the year ending 31.03.2022) for discount allowed and provision for discount created will be:
This questions was previously asked in
EPFO EO AO 2023
Rs 25,000
Incorrect AnswerRs 13,000
Incorrect AnswerRs 9,000
Incorrect AnswerExplanation:
Let's break down each statement and calculation for clarity:
- Trade Receivables: Rs 2,50,000
- Existing Provision for discount to debtors: Rs 14,000 (credit balance)
- Discount to debtors (already written-off in year): Rs 4,000
- Additional discount allowed in current year: Rs 20,000
- Provision required at year-end: 10% of Rs (2,50,000 - 20,0000)= Rs 23,000 (provison is not calculated on discount given that is 20,000)
- Increase needed in provision: Rs 23,000 (required) - Rs 14,000 (existing) = Rs 9,000
- Amount to charge to P&L for this year:
- Total discount allowed = Rs 4,000 (from TB) + Rs 20,000 (additional) = Rs 24,000
- Add: Increase in provision to be made = Rs 9,000
- Total to charge to P&L = Rs 24,000 + Rs 9,000 = Rs 33,000
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By: santosh