On dissolution of a firm, debtors ₹17,000 were shown in the Balance Sheet. Out of this ₹2,000 became bad. One debtor became insolvent. 70% were recovered from him out of ₹5,000. Full amount was recovered from the balance debtors. On account of this item, loss in realisation account will be:

₹3,500

The correct answer is option 2- ₹3,500.

Bad debts = 2,000

One debtor became insolvent. 70% were recovered from him out of ₹5,000.
Amount to be recovered = 5,000 but recovered only 70% means 30% is bad debts.
Other Bad debts = 5,000 x 30/100
                           = 1,500

Total Loss on realisation = 2,000 + 1,500
                                       = 3,500