Question

On the date of admission of a new partner, the Balance Sheet of a firm showed Debtors ₹ 5,00,000 and Provision for Doubtful Debts of ₹ 40,000.

You are required to pass necessary journal entries for treatment of Provision for Doubtful Debts on the date of admission in each of the following cases:

1. Bad Debts amounted to 30,000.
2. Bad Debts amounted to 45,000.

Answer 1

(i)  When actual bad debts (₹ 30,000) are less than the existing provision (₹ 40,000), the entire loss is absorbed by the provision. The remaining provision balance of ₹ 10,000 stays in the books unless the problem instructs otherwise.

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bad Debts A/c   ...Dr.		30,000
	To Sundry Debtors A/c			30,000
	(Being bad debts written off against debtors)
2.	Provision for Doubtful Debts A/c   ...Dr.		30,000
	To Bad Debts A/c			30,000
	(Being bad debts closed by transferring to Provision account)

(ii) When actual bad debts (₹ 45,000) exceed the existing provision (₹ 40,000), the excess loss of ₹ 5,000 cannot be absorbed by the provision account and must be debited to the Revaluation Account.

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
1.	Bad Debts A/c   ...Dr.		45,000
	To Sundry Debtors A/c			45,000
	(Being bad debts written off against debtors)
2.	Provision for Doubtful Debts A/c   ...Dr.		40,000
	Revaluation A/c   ...Dr.		5,000
	To Bad Debts A/c			45,000
	(Being bad debts adjusted against the full available provision and the excess loss charged to Revaluation account)