Plz explain me the following :
Rahul become insolvent, who owed is Rs 2,000 a final dividend of 60 paise in a rupee is received from his estate.
Amount due from Rahul = Rs 2,000
Amount Recoverable from Rahul = Rs 1,200 (Rs 2,000*0.60)
Amount not recoverable from him (Bad-Debts) = Rs 800 (Rs 2,000-1,200)
The Journal Entry for the above is as follows:
|Date||Particulars||L.F.||Debit AmountRs||Credit AmountRs|
|To Rahul’s A/c||2,000|
|(Rahul, a debtor for Rs 2,000 became insolvent, 60 paise on a rupee is recoverable from him.|
Rahul became insolvent - He is not in reach to his cfreditor either he is dead or he ran without reaying the money to his lender.
He owed Rs 2000 means that he had taken th amount as a loan or any type of borrowing.
Final dividend of 60 paise in a rupee is recieved simply means that 60 % amount amount stands recieved and rest retained by the borrower.
Rest amount left would be considered as bad debt = 40 % of Rs 2000 = Rs 800
Therefore 800 will be treated as bad debts for the lender.
Hope it helps!!!