Question

A debtor whose rupees 500000 to the company is rumoured to be declared insolvent. How will you disclose this information in the books by using which concept of accounting

Answer 1

Answer:

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Explanation:

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Answer 2

ANSWER :

A debtor who owes Rs. 5,00,000 to the company is rumoured to be declared insolvent.

• ➜ This information can be disclosed in the books through Provision for Bad and Doubtful Debțs by using the modifying concept of accounting : Conservatism (Prudence) Concept.

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EXPLANATION :

When an amount is not received from a debtors by the company, it is treated as bad debţs and being declared as insolvent means the debtor will not be able to pay the debţs he owes.

$\: \: \: \: \: \: \: \: \: \:$ Again, according to Conservatism Concept of accounting, all anticipated losses should be provided for and all anticipated gains should be ignored. Conservatism Concept is applied for maintaining provision bad and doubtful debţs.

Here,

• ✠ A debtor of the company is rumoured to be declared as insolvent who owes a debţ amounted to Rs. 5,00,000.

As it is a rumour, it might be true or it might be false. So, the fact of receiving the amount from the debtor is in doubt. If the rumour is false, then the company may recover the debţ amount from him and if it is true, then the company will not get the amount of debţ owed by the debtor.

$\: \: \: \: \: \: \: \: \: \:$ Hence, in order to disclose the information in the books, Provision for Bad and Doubtful Debţs should be created in anticipation of actual bad debţs by using the accounting concept of Conservatism (Prudence) Concept.