On 1st April 2018 Shiv had a provision for doubtful debts of 650 on 31...
**Provision for Doubtful Debts**
**1. Introduction**
Provision for doubtful debts is an accounting concept used to estimate the amount of bad debts that a company is likely to incur in the future. It is created by recording an expense in the financial statements to reflect the possibility of non-payment by customers.
**2. Calculation of Provision for Doubtful Debts in 2018**
On 1st April 2018, Shiv had a provision for doubtful debts of 650. This means that Shiv estimated that a certain amount of debtors would not be able to pay their dues. This provision is created to account for the potential loss that may arise due to non-payment.
**3. Calculation of Bad Debts in 2019**
On 31st March 2019, the total debtors amounted to 18,408 out of which 412 were identified as bad debts and had to be written off. Bad debts are those debts that are deemed to be uncollectible. These debts are removed from the accounts as they are no longer expected to be paid.
**4. Calculation of Provision for Doubtful Debts in 2019**
To maintain a provision for doubtful debts at 5% of the debtors, Shiv needs to calculate the new provision for the year 2019. The provision is a percentage of the debtors that is estimated to be uncollectible.
Total debtors on 31st March 2019: 18,408
Bad debts written off: 412
Provision for doubtful debts for 2019: (18,408 - 412) * 0.05 = 899.80
Therefore, the provision for doubtful debts on 31st March 2019 will be 899.80.
**5. Calculation of Bad Debts in 2020**
On 31st March 2020, the debtors amounted to 10,320 out of which 320 had to be written off as bad debts. These bad debts are removed from the accounts as they are deemed to be uncollectible.
**6. Calculation of Provision for Doubtful Debts in 2020**
To maintain a provision for doubtful debts at 5% of the debtors, Shiv needs to calculate the new provision for the year 2020. The provision is a percentage of the debtors that is estimated to be uncollectible.
Total debtors on 31st March 2020: 10,320
Bad debts written off: 320
Provision for doubtful debts for 2020: (10,320 - 320) * 0.05 = 500
Therefore, the provision for doubtful debts on 31st March 2020 will be 500.
**Conclusion**
In conclusion, provision for doubtful debts is created to account for potential bad debts that a company may incur. It is calculated as a percentage of the debtors and is adjusted based on the actual bad debts written off. Shiv maintained a provision for doubtful debts at 5% of the debtors and adjusted it accordingly in 2019 and 2020 based on the bad debts written off.
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