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Urgent: treatment for provision for bad debts under mat

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CA abhishek Jain

Associate manager

65 Points Posted on 24 January 2014

A company makes a provision for bad debts in the first year. Accordingly, while computing Book profit u/s 115JB, it add backs the amount of provision to the net profit.

In the second year, the provision made earlier actually becomes a bad debt. What will be the impact while computing book profit u/s 115JB in the second year?

For the 2nd Year whatever amount of provision we had reversed, shall we deduct it while computing Book profit?

Replies (2)

Yes, you can reduce the actual bad debts reversed while computing book profits under section 115JB. Refer Explanation 1 to section 115JB (Amount withdrawn from reserves or provisions, if the same had been added back for computing book profit in an earlier year)

CA abhishek Jain

Associate manager

65 Points Posted on 24 January 2014

Thank You.

One more question while making provision for bad debts We should add back it for calculating 'Book Profit'. It is because of 'Provision made for unascertained liabilities' OR 'Provision for dimunition in value of any asset'.?