In an organization, provision for Bad debts is Rs. 5,000 in the beginning. At the end total sales is Rs. 6,00,000 out of which Rs. 1,00,000 is cash sales. 1% provision is to be created on remaining debtors. The amount to be debited to profit and loss account in respect of provision is.

[amp_mcq option1=”Rs. 6,000″ option2=”Rs. 5,000″ option3=”Rs. 1,000″ option4=”Zero” correct=”option3″]

The correct answer is C. Rs. 1,000.

The amount of provision to be created on remaining debtors is 1% of Rs. 5,00,000 – Rs. 1,00,000 = Rs. 4,00,000 = Rs. 400.

The amount of provision already created in the beginning is Rs. 5,000.

Therefore, the amount to be debited to profit and loss account in respect of provision is Rs. 400 – Rs. 5,000 = Rs. 1,000.

Here is a brief explanation of each option:

• Option A: Rs. 6,000 is incorrect because it is the total sales, not the amount of provision to be created.
• Option B: Rs. 5,000 is incorrect because it is the amount of provision already created in the beginning, not the amount of provision to be created.
• Option C: Rs. 1,000 is correct because it is the amount of provision to be created, less the amount of provision already created.
• Option D: Zero is incorrect because it is the amount of provision already created, not the amount of provision to be created.