Treatment of reserve for doubtful debt
This query is : Resolved
16 March 2017
In case if old provision for doubtful debt is given and no adjustment regarding new provision for doubtful debts then is it required to consider that new provision is same as old provision for doubtful debts
16 March 2017
Could you please elaborate your question ?
16 March 2017
no you cannot assume that.
every year provision must be reassesed
02 August 2025
Here’s how to treat **Reserve for Doubtful Debts** in this scenario:
---
### Situation:
* You have an **old provision for doubtful debts** already created in the books.
* Now, you have a **new provision for doubtful debts** calculated (say, as per current norms or updated assessment).
* But no adjustment entry has been made yet in the books to reflect the new provision.
---
### Treatment:
1. **Accounting Treatment:**
* Provision for doubtful debts is a **contra asset account**, reducing the receivables.
* If the **new provision amount differs from the old provision**, you should **adjust the difference** in the books by either:
* **Increasing the provision** (by charging P\&L) if new provision > old provision.
* **Decreasing the provision** (by writing back to P\&L) if new provision < old provision.
* If **no adjustment is made**, technically the books still reflect the **old provision**.
2. **Tax Treatment (Income Tax):**
* As per **Income Tax Act (Section 36(1)(vii))**, only **specific provision for doubtful debts** is allowed as deduction.
* If **old provision** was created and allowed in earlier years, and **new provision differs**, the allowable deduction is only to the extent of the **new provision**.
* If no adjustment is made in books, the **old provision continues to be considered** for tax purposes unless adjusted in accounts or returned as income.
* Therefore, if new provision is higher and you have not adjusted, the **additional provision will not be allowed** for deduction unless adjusted.
3. **Conclusion:**
* If you **do not make any adjustment**, the **old provision stands**.
* For accounting accuracy and tax compliance, **adjust the provision to reflect the new provision**.
* Otherwise, for tax and audit purposes, you should consider the provision as per the **old provision figure** recorded in the books.
---
### Summary:
* Without any adjustment, **old provision = current provision** as per books.
* Adjustments should be made to reflect updated estimates.
* For Income Tax deduction, only the provision reflected in books and created in compliance with law is allowed.
---
If you want, I can help with the journal entries to adjust the provision. Would you like that?
---
### Situation:
* You have an **old provision for doubtful debts** already created in the books.
* Now, you have a **new provision for doubtful debts** calculated (say, as per current norms or updated assessment).
* But no adjustment entry has been made yet in the books to reflect the new provision.
---
### Treatment:
1. **Accounting Treatment:**
* Provision for doubtful debts is a **contra asset account**, reducing the receivables.
* If the **new provision amount differs from the old provision**, you should **adjust the difference** in the books by either:
* **Increasing the provision** (by charging P\&L) if new provision > old provision.
* **Decreasing the provision** (by writing back to P\&L) if new provision < old provision.
* If **no adjustment is made**, technically the books still reflect the **old provision**.
2. **Tax Treatment (Income Tax):**
* As per **Income Tax Act (Section 36(1)(vii))**, only **specific provision for doubtful debts** is allowed as deduction.
* If **old provision** was created and allowed in earlier years, and **new provision differs**, the allowable deduction is only to the extent of the **new provision**.
* If no adjustment is made in books, the **old provision continues to be considered** for tax purposes unless adjusted in accounts or returned as income.
* Therefore, if new provision is higher and you have not adjusted, the **additional provision will not be allowed** for deduction unless adjusted.
3. **Conclusion:**
* If you **do not make any adjustment**, the **old provision stands**.
* For accounting accuracy and tax compliance, **adjust the provision to reflect the new provision**.
* Otherwise, for tax and audit purposes, you should consider the provision as per the **old provision figure** recorded in the books.
---
### Summary:
* Without any adjustment, **old provision = current provision** as per books.
* Adjustments should be made to reflect updated estimates.
* For Income Tax deduction, only the provision reflected in books and created in compliance with law is allowed.
---
If you want, I can help with the journal entries to adjust the provision. Would you like that?
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- About TDS & Income Tax
- PPF interest-As Exempt Income disclosure
- Pass word to open justification report for Q1 for FY 2026-27
- Section 194JA & JB Income which ITR Form to use
- Scrutiny and reopening of past returns
- Type of Capital Gain
- Booth for sales promotion
- F & O PROFIT REPORTING FOR AY 2026-27
- Regarding ITR filing with more value than showing in AIS/TIS
- Grand in aid
- TDS on Rent received on redevelopment of building
- Tax on Deemed Capital Gain
- Indian IT Portal issue in computing tax as per UK-India DTAA
- Capital Gains on sale of residential flat
- Upload Level ValidationITR3Category of Defect B/D
- PF Taxable Income
- Clarification on Tax Audit Applicability and Reporting of F&O Transactions in ITR-3
- Interest credited in FY2025-2026 & TDS therein by EPFO does not reflect in AIS or Form 26AS
- 44ad eligble money lending interest
- Taxation in the hands of Landowner under JDA
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
Subscribe to Pro
Join an elite circle of professionals
CAclubindia
