Tag: provision and reserves

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Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

The provisions relating to inter-corporate loans are inter-alia laid down in :

  1. Section 370 of the Companies Act 1956

  2. Section 372 of the Companies Act 1956

  3. Section 372A of the Companies Act 1956

  4. Section 371 of the Companies Act 1956
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

As per Section 370 of the companies Act 1956 had the provisions related to inter-corporate loans. According to this section No company (the lending company") shall make any loan to, or give any guarantee, or provide any security, in connection with a loan made by any other person to, or to any other person by, anybody corporate , unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company.


Further, Section 370 of companies Act 1956 has been repealed by Section 186 of New Companies Act 2013

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Give journal entry for:
For creating provision for doubtful debts.

  1. Provision for doubtful debts A/c    Dr.

    To Profit and Loss A/c

  2. Profit and Loss A/c      Dr.

    To Provision for doubtful debts A/c

  3. Bad debts A/c    Dr.

    To Sundry debtors A/c

  4. Profit & Loss A/c    Dr.

    To Bad debts A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Provision for doubtful debt is created for the anticipated loss due to non recovery of the debtors amount. It is a charge to the profit & loss account. 

Following journal entry will be passed:

Profit & Loss A/c                                      Dr.
  To Provision for doubtful debts A/c

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Which of the following is created by debiting the Profit and Loss Account ?

  1. Provision.

  2. Sinking fund for redemption of debentures.

  3. Dividend equalization fund.

  4. All of these.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Provisions are created for anticipated or estimated future losses or against the expenses which are due but not paid. 

Provisions are always created from the profit & loss account. 

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Provision can be created for __________.

  1. Current assets

  2. Liabilities & assets

  3. Valuation adjustment for fixed asset

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A provision is an amount that you put in aside in your accounts to cover a future liability.
The purpose of a provision is to make a current year’s balance more accurate, as there may be costs which could, to some extent, be accounted for in either the current or previous financial year. These costs that distinctly belong to a specific year could be misleading if accounted for in the future.
A provision is not a form of saving, even though it is an amount that is put aside for a future plausible cost or obligation. Provisions resulting impact is a reduction in the company's equity.
When accounting, provisions are recognized on the balance sheet and then expensed on the income statement.

Provision can be created for any of the foloowing:

1. Current assets

2. Liabilities and assets

3. Valuation adjustment for fixed asset


Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Debtors are of $Rs.30000$
Bad debts are of $Rs. 6000$
Rate of provision for bad debt is $20$%
State what is the amount of Provision?

  1. $Rs.4800$

  2. $Rs.5000$

  3. $Rs.4000$

  4. $Rs.7000$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Provision for bad debts is created towards anticipated bad debts based on a certain percentage. 

Amount of provision for bad debts is calculated on the net debtors i.e. after deducting the actual bad debts from the debtors. 
Solution to the given problem is as under:

Debtors                           $Rs.30000$
Less: Bad Debts             $Rs. 6000$
                                        ----------------
Balance debtors             $Rs.24000$
                                       -----------------
Provision for bad debts @$20$% on $Rs. 24000$= $Rs.4800$

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Give journal entry for:
Bad debts written off.

  1. Bad debts A/c Dr.

    To Profit & loss A/c

  2. Profit & Loss A/c Dr.

    To Provision for doubtful debts A/c

  3. Profit & loss A/c Dr.

    To Sundry debtors A/c

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Amount which is not recoverable from the debtors is called bad debts. Bad debts has to be debited as an expense/loss and credited to sundry debtors account. 


1. Bad Debts A/c                                 Dr.
      To Sundry Debtors A/c 

Bad debts is a loss for the organization and should be debited to profit & loss account. 

2. Profit & Loss A/c                                Dr.
          To Bad Debts a/c


Instead of passing 2 separate entries, only 1 comprehensive entry can be passed:
Profit & loss A/c   Dr.
      To Sundry Debtors A/c

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Debtors are of $Rs.20000$
Bad debts are of $Rs. 3000$
Rate of provision for bad debt is $10$%
State the amount for Provision?

  1. $Rs.1800$

  2. $Rs.2000$

  3. $Rs.1700$

  4. $Rs.2500$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Provision for bad debts is created towards anticipated bad debts based on a certain percentage. 

Amount of provision for bad debts is calculated on the net debtors i.e. after deducting the actual bad debts from the debtors. 
Solution to the given problem is as under:

Debtors                           $Rs.20000$
Less: Bad Debts             $Rs. 3000$
                                        ----------------
Balance debtors             $Rs.17000$
                                       -----------------
Provision for bad debts @$10$% on $Rs.17000$= $Rs.1700$

Multiple choice accountancy provisions and reserves reserves provisions provision and reserves

Debtors are of $Rs.20000$
Bad debts are of $Rs.5000$
Rate of provision for bad debt is $15$%
State the amount for Provision?

  1. $Rs.5000$

  2. $Rs.2250$

  3. $Rs.3500$

  4. $Rs.2000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Provision for bad debts is created towards anticipated bad debts based on a certain percentage. 

Amount of provision for bad debts is calculated on the net debtors i.e. after deducting the actual bad debts from the debtors. 
Solution to the given problem is as under:

Debtors                           $Rs.20000$
Less: Bad Debts             $Rs. 5000$
                                        ----------------
Balance debtors             $Rs.15000$
                                       -----------------
Provision for bad debts @$15$% on $Rs.15000$= $Rs.2250$