Treatment of recovery towards bad debt provision for mat

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Ramesh (Querist)
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02 March 2012 Hi!
Please advise how the treatment to be given for the amount recovered against bad debt provision made last year for MAT. While calculating the MAT any bad debt provision is there, it is to be added to profit for MAT calculation. Therefor, logically if any amount is recovered against these bad debt provisions, it should be reduced from profit for calculation of MAT. Please advise.
With warm regards,
Ramesh

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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02 March 2012 Calculation of MAT is based on Profit & Loss Account.

Items appearing in profit or loss are to be added/reduced.

Recovery against provision made for bad debts does NOT appear in the P&L A/c.

Entries:

Provision:

P&L Dr.
To Prov.

Recovery:

Bank A/c Dr.
To P&L

Since the recovery is not credited to P&L A/c the same will not form part of book profit for computing MAT.

In simple words MAT is not to be paid on such recovery.

Ramesh

Ramesh (Querist)
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02 March 2012 Thanks Siddhartha,
Please note that in Year 2010-11, provision is made for Bad debt and accordingly it was added back to P&L for MAT Calculation (it is added back since P&L was debited). In year, 2011-12, the amount was recovered from debtors hence entry passed as Bank A/c. Dr. to P&L. Now, as per headings given for MAT calculation, nothing is mentioned about decreasing profit if there is any such type of recovery. What to do in Year 2011-12? Please have more views on this.
Rgds,
Ramesh

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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02 March 2012 The provision was added back only for the purpose of MAT. The accounting treatment did not change. Did you reverse the provision in the books??

If you did, then entry on recovery shall be:

Bank A/c Dr.
To Debtors (not P&L)

anurag

anurag (Expert)
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02 March 2012 The adjustments has to be made in respect of bad debts.

Ramesh

Ramesh (Querist)
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03 March 2012 Siddhartha,
In 10-11, Entry was passed as follows:
Bad debt Prov. Exp. A/c. Debit (PNL Item)
To Bad debt provision a/c. (B/S item).
Therefore it was added back to Profit for mat for the year 10-11.
Now in 11-12, recovery was made hence entry to be passed as follows:
Bank A/c. Debit
To debtors account.
And since there is no need of prov. for bad debt, we must reverse the provision as follows:
Bad Debt provision A/c. Debit (B/S Item)
To Bad debt recovery a/c. (or Bad debt prov. exp. A/c. (both are PNL item).
Thus, PNL includes the amount of recovery. Now the question is whether it is to be decreased from the profit since last year we have disallowed (or we have added back )the amount of bad debt provision.
Thanks
Ramesh

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