Calculate allowance (provision) for bad and doubted debts

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This discussion clarifies how to calculate provisions for bad and doubted debts for private limited companies. While the Companies Act and Accounting Standards don't specify exact percentages, they require an appropriate accounting policy. The provision percentage should reflect economic conditions and historical data, with examples showing adjustments based on economic improvement or decline.

MADHU MITTAL

MADHU MITTAL (Querist)

31 October 2020 companies act including Accounting Standard are applicable on private limited concern. I am unable to find out how to calculate (per centage of debtors etc) allowance (provision) for bad and doubted debts according to companies act including Accounting Standard.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 November 2020 if a trader's bad debt represented 2% of its total debtors last year, and the economy has significantly improved since then, it may only decide to set aside a bad debt provision of 1.5% of its total debtors this year. If economy is not improved 2% or higher provision may be made.

MADHU MITTAL

MADHU MITTAL (Querist)

02 November 2020 Respected Sir,
thanks for your guidance, it means nothing "about per centage and how to calculate" is written in Companies Act as well as Accounting Standards. It is according to one's choice of adopting accounting policy.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

02 November 2020 Yes, you are right...............

MADHU MITTAL

MADHU MITTAL (Querist)

02 November 2020 Thanks a lot for your quick guidance again.

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