From the following information, find out the amount of provision required to be made in the Profit & Loss Account of Laxmi Commercial Bank Ltd for the year ended 31/3/2022.

Steps to Solve

1. Identify the Classification of Assets

Identify the categories of advances provided in the problem:

• Standard Asset: Rs 1,200 lakhs
• Sub-Standard Asset: Rs 440 lakhs
• Doubtful Assets with further classification:
  • Upto One year: Rs 180 lakhs
  • One to Three years: Rs 135 lakhs
  • More than Three years: Rs 60 lakhs
• Loss Asset: Rs 120 lakhs

2. Determine the Required Provisions for Each Category

According to the Reserve Bank of India guidelines, the provision percentages are generally as follows:

• Standard Assets: 0.4%
• Sub-Standard Assets: 15%
• Doubtful Assets:
  • Upto One year: 25%
  • One to Three years: 40%
  • More than Three years: 100%
• Loss Assets: 100%

3. Calculate the Provision for Each Category

Calculating provisions for all categories:

• Provision for Standard Asset: $$ 1200 \times 0.004 = 4.8 \text{ lakhs} $$

• Provision for Sub-Standard Asset: $$ 440 \times 0.15 = 66 \text{ lakhs} $$

• Provision for Doubtful Assets:

  • Upto One year: $$ 180 \times 0.25 = 45 \text{ lakhs} $$

  • One to Three years: $$ 135 \times 0.40 = 54 \text{ lakhs} $$

  • More than Three years: $$ 60 \times 1 = 60 \text{ lakhs} $$

• Provision for Loss Asset: $$ 120 \times 1 = 120 \text{ lakhs} $$

4. Total Provision Required

Add all the calculated provisions together: $$ \text{Total Provision} = 4.8 + 66 + 45 + 54 + 60 + 120 $$

Calculating the total: $$ \text{Total Provision} = 349.8 \text{ lakhs} $$