In the balance sheet Total Debtors appear at Rs. 1,50,000 and provision for doubtful debts appear at Rs. 1,500. How much amount will be realised from debtors, if bad debts amounted to Rs. 20,000 and remaining debtors realised at a discount of 15% ?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 1,10,500
The cash realised from debtors is worked out on the debtors that are still good. First take out the bad debts, then apply the discount at which the rest are collected.
Total debtors = Rs. 1,50,000
Less: Bad debts = Rs. 20,000
Good debtors = Rs. 1,50,000 − Rs. 20,000 = Rs. 1,30,000
Realised at a discount of 15%, that is, at 85%
Amount realised = Rs. 1,30,000 × 85/100 = Rs. 1,10,500
The provision for doubtful debts of Rs. 1,500 is only a book figure. It is closed by transfer to the Realisation Account, but no cash comes in from it, so it does not change the amount realised.