Hello!
I have a problem with this cash flow problem in my ipcc practise manual. They have given that the bad debts have been adjusted with the provision and hence added back in the operating activities. i don't understand why they have added the bad debts to the gross amount of the debtors in the working capital changes.
Coz, bad debts are part of debtors that arise by sales,
and the same has an effect on cash.
but wouldn't my debtors show a higher figure since we know that my debtors to that extent is not recoverable?
I went through the Question in PM. Your query is right. Even as per my view the amount should not be added back to Gross Debtors. Also If they have increased the liability for provision of bad debt, they should reduce profit for the bad debt amount. Even that adjustment is missing.
If you want I will share my working notes
If you have got any better explanation for that solution, please share
Gupta Sachdeva & Co. Chartered Accountants
New Delhi
CA Final
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CAclubindia
