Question
A firm reports the following balances in its trial
balance: The firm provides a discount of 8% on Trade Receivables. The total discount allowed and provision to be accounted for in the Profit and Loss Account for the year ending 31.03.2022 is:Solution
Closing provision required 8% of ₹1,80,000 = 0.08 × 1,80,000 = ₹14,400 (this is the new required provision) Effect on Profit & Loss What hits P&L for the year? Actual discount allowed (already given): ₹5,000 Change in provision: New provision: 14,400 Old provision: 12,000 Increase = 14,400 − 12,000 = ₹2,400 This increase is an extra expense for the year. Total amount debited to P&L Total discount + provision charge: ₹5,000 + ₹2,400 = ₹7,400 So the correct figure to be accounted for in the Profit & Loss Account is ₹7,400.
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