Provision for Doubtful Debt on 1st April, 2018 was `21,500. During the year 2018 - 19 the Bad-debt and Recovery of Bad-debt were ` 10,500 and ` 2,100 respectively. The Sundry Debtors on 31st March, 2019 were `2,25,000. Provision is to be made @ 5% on Debtors. If on 31st March, 2019, there was additional Bad-debt of ` 2,500 then Provision for doubtful-debt will be

Question

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The provision for doubtful debts is calculated on the closing balance of debtors after adjusting for bad debts and recoveries. The calculation is as follows: Adjusted Debtors = Sundry Debtors - Additional Bad-debt + Recovery of Bad-debt = 225,000 - 2,500 + 2,100 = 224,600. New Provision = 5% of Adjusted Debtors = 5% of 224,600 = 11,230. Change in Provision = New Provision - Old Provision = 11,230 - 21,500 = -3,270. Since the provision has decreased, the difference is credited to the Profit & Loss Account, but since the question asks for the amount to be debited (implying the expense associated with the provision for the current year), we calculate the expense as the amount added to reach the new provision level from adjustments made during the year: Bad-debt expense (including additional bad debt) = 10,500 + 2,500 = 13,000. Recovery of Bad-debt reduces this expense, so the net expense = 13,000 - 2,100 = 10,900. The net effect on the P&L for provisions and bad debts combined is an increase in expenses, but since the direct question is about the provision adjustment, the correct answer reflects the calculation error in interpreting the provision adjustment as a direct debit to the P&L. The correct approach is to recognize the net change in provision required based on the adjusted debtor balance, which results in a calculation of the new provision requirement and comparison to the existing provision.

Provision for Doubtful Debt on 1st April, 2018 Was `21,500