Session 12 - Adjustment of Depreciation, Provision for bad and doubtful debts etc.

Session Plan : Adjustment of Depreciation, Provision for bad and doubtful debts etc.

Introduction (5 min): Explain meaning of adjustments and why depreciation, provisions, and reserves are needed.

Concept & Journal Entries (10 min): Discuss entries for depreciation, bad debts, and provision for doubtful debts.

Illustrations (15 min): Solve examples showing their effect on P&L A/c and Balance Sheet.

Class Activity (10 min): Students practice adjustments on given trial balance data.

Recap & Q/A (5 min): Summarize key points and clarify doubts.

Lecture Material : (PDF, PPT)

Adjustment_of_Depreciation_BadDebts_Provisions.pptx 

Learning Material (IV Quadrant Approach)

(Q1) : Text and Image based Content (PDF/Image Formats)

4. Depreciation

Definition: The systematic allocation of the cost of a tangible asset over its useful life.

Treatment:

• Profit & Loss Account: Recorded as an expense to allocate the cost of tangible assets over their useful lives.

• Balance Sheet: Deducted from the respective asset's value to reflect its book value.

Journal Entry:

Depreciation A/C  Dr.

  To Asset A/C

Scenario: A machine purchased for ₹100,000 has a useful life of 10 years. Depreciation is calculated using the straight-line method.

Annual Depreciation: ₹100,000 / 10 = ₹10,000

Journal Entry:

Depreciation A/C  Dr. ₹10,000

  To Machinery A/C                ₹10,000

Impact:

• Profit & Loss Account: Depreciation expense of ₹10,000 reduces net profit.

• Balance Sheet: The carrying amount of machinery is reduced by ₹10,000, reflecting accumulated depreciation.

 5. Provision for Bad and Doubtful Debts

Definition: An estimate of the amount of accounts receivable that may not be collectible.

Treatment:

• Profit & Loss Account: Recorded as an expense to anticipate potential future bad debts.

• Balance Sheet: Deducted from accounts receivable to reflect the expected collectible amount.

Journal Entry:

Profit & Loss A/C  Dr.

  To Provision for Bad and Doubtful Debts A/C

Scenario: Accounts receivable total ₹200,000. Based on past experience, 5% is estimated to be uncollectible.

Provision Amount: ₹200,000 × 5% = ₹10,000

Journal Entry:

Profit & Loss A/C  Dr. ₹10,000

  To Provision for Doubtful Debts A/C                ₹10,000

Impact:

• Profit & Loss Account: An expense of ₹10,000 is recorded, reducing net profit.

• Balance Sheet: Accounts receivable is shown net of the provision, i.e., ₹190,000.

This approach aligns with the matching principle, ensuring expenses are recognized in the same period as the related revenues.

(Q2) : Video Based Content (Youtube): www.youtube.com/watch?v=c5Xop132eGM&list=PLLhSIFfDZcUXEs3UhIv5tMn6AAU1GNnPr&index=38 

(Q3) : Formative Assessment (Google Form/Any Other Online Quiz Platform): forms.fillout.com/t/9Khd6aZdi1us 

Ind AS 16 (Property, Plant & Equipment) – Depreciation accounting.

Ind AS 37 (Provisions, Contingent Liabilities & Assets) – Treatment of provisions.

Case studies on impact of under/over-provisioning on financial statements.