While verifying provisions of advances of a branch of MCO Bank as part of statutory branch audit, CA Z notices that credit facilities consisting of…

The provision for advances falling in D1 category is required @ 25% of secured portion and 100% of unsecured portion. Therefore, provision in above case is arrived as under: - Outstanding balance as on 31.3.23 50 lakhs Less: Value of security 40 lakhs ---------------- Unsecured portion 10 lakhs ---------------- Therefore, outstanding balance of 50lakhs is secured to the tune of 40lakhs and balance 10lakhs is unsecured. Provision calculation 25% of secured part i.e., 25% of 40lakhs 10lakhs 100% of unsecured part i.e.,100% of 10lakhs 10lakhs ---------------- Required provision 20lakhs ---------------- Therefore, provision made by branch is not proper. It should have made provision of 20 lakhs instead of 7.50 lakhs.