Multiple choice

Received a first and final dividend of 60 paise in the rupee from the official receiver of Mr. Rajan who owned us Rs. 1, 000. The accounting entry for this transaction is

  1. Discount allowed A/c be debited with Rs. 400

  2. Bad debts recovered A/c be debited with Rs. 600

  3. Bad debt A/c be credited with Rs. 400

  4. Bad debt A/c be debited with Rs. 400
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

First and final dividend of 60 paise means we receive 60% of Rs. 1000 = Rs. 600. The loss is Rs. 400 (40% of Rs. 1000). This unrecoverable amount is treated as bad debt. The correct entry is to debit Bad Debt Account with Rs. 400 and credit Rajan's Account.

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