Concept:An activity increases profit when it reduces expenses or increases revenue.
Reducing a provision lowers the total expense charged in the income statement.
Explanation:Provision for doubtful debts is an estimated expense set aside for credit sales that may never be collected.
When a business reduces this provision, the decrease is written back as a reduction in expenses.
Since
Profit=Revenue−Expenses, a fall in expenses leads to a rise in net profit.
Checking the other options confirms this result.
Depreciation charges increase expenses, so profit falls.
Undervalued closing stock lowers the value of closing stock, which reduces profit.
Returns inwards reduce sales revenue, which also reduces profit.
Therefore, only the reduction in provision for doubtful debts increases profit.
Answer:B. reduction in provision for doubtful debts