Question

Nandan and Abhinandan were partners in a firm. They admitted Govindan as a new partner for \( \frac{1}{3}^{\text{rd}} \) share in the profits. On Govindan’s admission, the Balance Sheet of the firm showed sundry debtors at 3,00,000 and a provision for bad debts at 24,000. It was decided to maintain the provision for bad debts at 10% of the debtors. Which of the following journal entries will show the correct accounting treatment for the above transactions?

• A. Revaluation A/c  Dr. 30,000 
  To Provision for Bad Debts  30,000
• B. Revaluation A/c  Dr. 6,000 
  To Provision for Bad Debts  6,000
• C. Govindan’s A/c  Dr. 2,000 
  To Provision for Bad Debts  2,000
• D. Nandan’s A/c  Dr. 2,000 
  Abhinandan’s A/c  Dr. 2,000 
  Govindan’s A/c Dr. 2,000 
  To Provision for Bad Debts 6,000

Hint:

In revaluation, if the provision for bad debts is to be increased, the amount of increase is debited to the Revaluation A/c, as it represents a loss to existing partners.

Answer 1

The Correct Option is B

Step 1: Sundry Debtors = 3,00,000
Step 2: New provision required = 10% of 3,00,000 = 30,000
Step 3: Existing provision = 24,000
Step 4: Increase required in provision = 30,000 - 24,000 = 6,000
Step 5: Increase in provision is a loss to the firm and should be debited to Revaluation Account.
The correct journal entry will be: Revaluation A/c Dr. & 6,000
To Provision for Bad Debts & 6,000