A simple example of “technical write offs”.
Let’s say you lend Rs. 1,00,000 to a friend from your emergency funds for 6 months, but you are sceptical about receiving the money back, so you create a provision against it by breaking your FD of Rs. 1,00,000 ahead of time.
After 6 months, you were right and he is in no condition to pay you back (maybe ever). But you already set aside the capital to protect yourself and your family in case of an emergency.
You do a “technical write-off” of the bad loan, so your wife doesn’t find out and kick you out of the house.
Your philosophy is, “I still have funds in case of an emergency, why bother? I haven’t forgiven my friend’s loan and I will still try your best to get my Rs. 1,00,000. But for the time being, don’t talk about it.”
Hope this helps.
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