Question

Luv and Kush were partners in a firm sharing profits and losses in the ratio of 5 : 4. On 1^st April, 2024, Rishi was admitted as a new partner for $\dfrac{2}{9}$ share in profits which he acquired equally from Luv and Kush. On the date of Rishi’s admission, the Balance Sheet of Luv and Kush showed debtors of ₹ 9,00,000 and provision for bad and doubtful debts of ₹ 90,000.
Pass necessary journal entries for treatment of provision for bad and doubtful debts on the date of Rishi’s admission in each of the following cases:
(i) Bad debts amounted to ₹ 60,000.
(ii) Bad debts amounted to ₹ 90,000.
(iii) Bad debts amounted to ₹ 1,00,000.

Hint:

When actual bad debts exceed provision, the excess is debited to Profit and Loss Account.

Answer 1

Case (i): Bad debts ₹ 60,000
Existing provision = ₹ 90,000
New required provision = ₹ 9,00,000 - ₹ 60,000 = ₹ 8,40,000 × estimated % of provision
Assuming provision rate unchanged, provision remains at ₹ 90,000 (unless stated). Since ₹ 60,000 is actual bad debts:
Journal Entry:
Provision for Bad & Doubtful Debts A/c Dr. ₹ 60,000
To Debtors A/c ₹ 60,000
(Being bad debts adjusted against provision)
Balance in provision after write-off = ₹ 30,000.
Case (ii): Bad debts ₹ 90,000
Provision for Bad & Doubtful Debts A/c Dr. ₹ 90,000
To Debtors A/c ₹ 90,000
(Being bad debts adjusted against provision)
Provision balance becomes nil.
Case (iii): Bad debts ₹ 1,00,000
Provision for Bad & Doubtful Debts A/c Dr. ₹ 90,000
Profit and Loss A/c Dr. ₹ 10,000
To Debtors A/c ₹ 1,00,000
(Being bad debts exceeding provision adjusted)
Final Answer: Appropriate entries passed for each scenario.