Bad and doubtful debts of a banker

Sir , a bank has given Rs.200,000 loan to someone which includes Rs.40,000 doubtful debts and the interest amount is Rs.10000 which includes Rs.2000 doubtful debts.and he becomes insolvent only 25 praise for a Ruppee is recoverable. Now will you please help me in calculating interest amount and bad debts.

asked Jun 29, 2016 in Trial Balance, Profit & Loss Account and Balance Sheet by Sankari Dkshith B (99 points) 386 views

1 Answer

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I understand the following facts from this question.

A. Bank has given a loan of Rs.200,000 to a customer on which Rs.10,000 has become due as interest.

B. On realising that they will not be able to recover full amount of Principal and Interest, they make a provision for Bad Debts of Rs.40,000 and Rs.2,000 against the        Principal amount and the interest respectively.

C  The loanee becomes insolvent and only 1/4 of the amount due is received from him.

So, the actual bad debts are:

Principal = (Rs.200,000 X 75/100)  = Rs.150,000.  Amount received on account of Principal is Rs.50,000.

Interest    = (Rs.10,000 X 75/100)    =  Rs.7,500.  Amount received on account of Interest will be Rs.2,500.

On receipt of these amounts the journal entry will be:

Bank A/c                                         Dr.  52,500

Provision for Doubtful Debts      Dr.   42,000

Bad Debts A/c                               Dr. 115,500  

     To Loan A/c                                                           200,000

      To Interest A/c                                                        10,000

Note:  Total bad debts are Rs.157,500 against which the provision is for Rs.42,000.  The bad debts over and above the provision amount will be debited to Bad Debts A/c.

answered Jun 29, 2016 by jbsclasses (3,971 points)