Financial reproting

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ritu dutta (Querist)
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20 September 2013 A company is providing 2-3% of provision for doubtful debt in past years but estimated that there will be bad debt of 6% on credit sales for the current year. It made a provision accordingly after analyzing the credit worthiness of the customers.whether the company has prepared the financial statement in compliance with
accounting standards? please clearly explain the provisions

Nikhil Kaushik

Nikhil Kaushik (Expert)
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21 September 2013 Dear Ritu.

If the management is of the view that providing for doubtful debtors at 2-3% in the current year would result in overstatement of profit, it shall be within its rights to increase the provision. It would be useful if the management provides an explanation for the increase in provision and also state whether the same is a one-time measure of a policy change to be followed in subsequent years too.

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