Bill Of Exchange - Class 11 Commerce Accountancy - Extra Questions

Two.

When the acceptor of the bill approach the drawer with the request for extension of time for payment, the old bill is cancelled and the fresh bill with new terms of payment is drawn and duty accepted and delivered. This is called renewal of the bill.

Dishonour of a bill means refusal to pay or inability to pay by the debtor because of insolvency. In other words, a bill is said to have been dishonoured when the drawee fails to make the payment on the date of maturity. In this situation, liability of the acceptor is restored. When a bill is dishonoured, it is always better if it is certified by a notary which is known as noting.
So, it is an ample proof that a bill is dishonoured which is noted down on the face to it. For this, the noting charges something known as notary charge or noting charges which may be recovered from the person who responsible for the dishonour of the bill.
The notary is compulsory in case of foreign bill as required under the law of that country whereas it is not so in case of inland bills. It is done with a view to have a proof of dishonouring the bill. So, it is very useful. Notary has to assign reasons for dishonour of a bill along with date of dishonour and charges made by him. It is to be noted that whosever pays the noting charges, ultimately these have to be borne by the drawee.

In the Books of Ritesh
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2010$$
Aug $$1$$	Bills Receivable A/c               Dr To Naina (Being acceptance received)		$$12,000$$	$$12,000$$
Aug $$5$$	Bank A/c                        Dr Discount A/c                       Dr To Bills Receivable A/c (Being bill discounted with bank)		$$11,680$$ $$320$$	$$12,000$$
Aug $$1$$	Naina                         Dr To Cash A/c To Discount A/c (Being half of the amount of bill sent to Naina with discount)		$$6,000$$	$$5840$$ $$160$$
Dec $$4$$	Naina                     Dr To Cash A/ (Being remittance to Naina for paying off accommodation bill)		$$6,000$$	$$6,000$$

In the Books of Naina
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2010$$
Aug $$1$$	Ritesh                  Dr To Bills Payable A/c (Being acceptance given)		$$12,000$$	$$12,000$$
Aug $$1$$	Cash A/c                   Dr Discount A/c                    Dr (Being half of the amount of bill received)		$$5,840$$ $$160$$	$$6,000$$
Dec $$4$$	Cash A/c                       Dr To Ritesh (Being Ritesh remittance received for paying off the bill)		$$6,000$$	$$6,000$$
Dec $$4$$	Bills Payable A/c To Bank A/c (Being bills payable paid on due date)		$$12,000$$	$$12,000$$

In the Books of Sonia
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2010$$
Nov $$1$$	Bills Receivable A/c                      Dr To Sunny (Being acceptance for accommodation bill received)		$$15,000$$	$$15,000$$
Nov $$1$$	Bank A/c                    Dr Discount A/c                       Dr To Bills Receivable A/c (Being bill dishonoured with bank at the rate of $$6\%$$ per annum)		$$14,775$$ $$225$$	$$15,000$$
Nov $$1$$	Sunny                            Dr To Cash A/c To Discount A/c (Being $$1/5$$ of the accommodation bill amount sent to Sunny)		$$5,000$$	$$4,925$$ $$75$$
$$2011$$
Feb $$4$$	Sunny                            Dr To Cash A/c (Being remittance to Sunny for paying off the accommodation bill)		$$10,000$$	$$10,000$$
Feb $$4$$	Sunny                          Dr To Bank A/c (Being bill dishonoured by Sunny on due date)		$$15,000$$	$$15,000$$
Feb $$4$$	Bank A/c                    Dr To Cash A/c (Being acceptance of Sunny met on maturity)		$$15,000$$	$$15,000$$
Feb $$4$$	Sunny                      Dr To interest A/c (Being interest due)		$$100$$	$$100$$
Feb $$04$$	Bills Receivable A/c                    Dr To Sunny (Being fresh acceptance received)		$$15,100$$	$$15,100$$
Mar $$7$$	Cash A/c                           Dr To Bills Receivable A/c (Being payment received on maturity from Sunny)		$$15,100$$	$$15,100$$

Note: Due date of new bill is assumed to be one month.
In the Books of Sunny
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2010$$
Nov $$1$$	Sonia                             Dr To Bills Payable A/c (Being acceptance given for accommodation bill of Sonia)		$$15,000$$	$$15,000$$
Nov $$1$$	Cash A/c                     Dr Discount A/c                    Dr To Sonia (Being $$1/3$$ of the accommodation bill amount received and discounted		$$4,925$$ $$75$$	$$5,000$$
$$2011$$
Feb $$4$$	Cash A/c                          Dr To Sonia (Being remittance received from Sonia)		$$10,000$$	$$10,000$$
Feb $$4$$	Bills Payable A/c                     Dr To Sonia (Being bill dishonoured on maturity)		$$15,000$$	$$15,000$$
Feb $$4$$	Interest A/c                      Dr To Sonia (Being interest due)		$$100$$	$$100$$
Feb $$4$$	Sonia                                 Dr To Bills Payable A/c (Being second bill accepted)		$$15,100$$	$$15,100$$
Mar $$7$$	Bills Payable A/c                   Dr To Cash A/c (Being acceptance paid on maturity)		$$15,100$$	$$15,100$$

In the Books of Vishal
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Jan $$5$$	Manju                           Dr To Sales A/c (Being goods sold to Manju)		$$7,000$$	$$7,000$$
Jan $$5$$	Bills Receivable A/c                   Dr To Manju (Being acceptance received)		$$7,000$$	$$7,000$$
Jan $$5$$	Bank A/c                  Dr Discount A/c               Dr To Bills Receivable A/c (Being Bill discounted with the bank at the rate of $$12\%$$ per annum)		$$6,860$$ $$140$$	$$7,000$$

Working Note
Calculation of Interest $$=7,000\times \displaystyle\frac{12}{100}\times \frac{2}{12}=$$ Rs. $$140$$
In the Books of Manju
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Jan $$5$$	Purchase A/c               Dr To Vishal (Being goods purchased from Vishal)		$$7,000$$	$$7,000$$
Jan $$1$$	Vishal                   Dr To Bills Payable A/c (Being acceptance given)		$$7,000$$	$$7,000$$
Mar $$8$$	Bills Payable A/c                           Dr To Bank A/c (Being bills payable paid on maturity)		$$7,000$$	$$7,000$$

Answer 

Dr                                    Bills Receivable Account                       Cr

Date	Particulars	JF	Amt. (Rs)	Date	Particulars	JF	Amt.(Rs)
	To Balance b/d		$$1,20,000$$		By Cash/Bank (Bills honoured)		$$1,85,000$$
	To Debtor (Bills received)(Acceptances)		$$1,50,000$$		By Bills Endorsed		$$22,800$$
					By Debtors (Bills dishonoured)(Balancing Figure)		$$11,500$$
			$$2,70,000$$		By Balance c/d		$$50,700$$

There are instances when a bill of exchange is arranged to be retired before the due date by mutual understanding between the drawer and the drawee. This happens when the drawee of the bill has funds at his disposal and makes a request to the drawer or holder to accept the payment of the bill before its maturity.
If the holder agrees to do so, the bill is said to have been retired. The retiring of a bill draws a curtain on the bill transactions before the expiry of its normal term.
To encourage the retirement of the bill, the holder allows some discount called rebate on bills for the period between date of retirement and maturity. The rebate is calculate at a certain rate of interest. The accounting treatment on the retirement of a bill is similar to the accounting treatment when a bill is honoured by the acceptor on the due date in the ordinary course. The only difference between the two relates to the granting of rebate.

Noting is the recording of the fact of dishonor by a notary public which becomes an evidence of dishonor. When a bill of exchange is dishonor, in order to prove the fact, the holder may get the bill noted. Charges paid on noting are called as noting charges.

A bill of exchange is usually honored only on the maturity date. But, in some cases, it can be honored before time. This is known as Retirement of Bills of Exchange. Also, a bill may be canceled before time and a new bill may be written in its place. This is known as Renewal of Bills of exchange.

$$FV=PW+$$ Int on $$PW$$ for $$4$$ months $$@$$ $$5$$ % p.a.
$$36600=PW+PW\times\dfrac{4}{12}\times\dfrac{5}{100}$$
$$36600=PW+\dfrac{PW}{60}$$
$$PW=\dfrac{36600\times60}{61}$$
$$PW=Rs. 36,000$$

$$TD=$$ Int on $$PW$$ for $$4$$ months @ $$5$$ % p.a.
$$TD=36000\times\dfrac{4}{12}\times\dfrac{5}{100}$$
$$TD=Rs. 600$$

$$BD=$$ Int on $$FV$$ for $$4$$ months @ $$5$$ % p.a.
$$BD=36600\times\dfrac{4}{12}\times\dfrac{5}{100}$$
$$BD=Rs. 610$$

$$BG=BD-TD$$
$$BG=610-600$$
$$BG=Rs. 10$$

Hence, this is the answer.

Officer appointed by the Central Government for noting of dishonour of a bill Notary Public.

$$$1=100c\\ $2=200 c$$

W. No. $$1$$ : 

Bill was drawn on $$8^{th}$$ March $$2013$$ for $$7$$ months.
Normal due date $$= 8^{th}$$ October $$2013$$
Legally due date $$= 11^{th}$$ October $$2013$$
It was discounted on $$18^{th}$$ May $$2013$$
$$\therefore$$ The unexpired period of the bill.
May            -     $$13$$ days
June           -     $$30$$ days
July            -     $$31$$ days
August        -     $$31$$ days
September  -     $$30$$ days
October      -     $$11$$ days
------------------------------------------
Total         $$=$$     $$146$$ days
$$=\dfrac{146}{365}$$ yrs
$$=\dfrac{2}{5}$$ yrs
Now banker's discount $$=(7650-7497)$$
$$=153$$ .
As banker's discount $$=A\times n\times i$$
$$153=7650\times \dfrac{2}{5}\times i$$
$$\Rightarrow 765=7650\times 2\times i$$
$$\Rightarrow \dfrac{1}{20}=i$$
$$\Rightarrow i=0.05$$
Hence the required rate of interest is $$5\%$$ p.a.

$$July$$	$$August$$	$$September$$	$$October$$	$$November$$	$$Total$$
$$31$$	$$31$$	$$30$$	$$31$$	$$23$$	$$146$$

$$FV=Rs\ 60000$$   $$CV=Rs57,300$$   $$r=11\cfrac{1}{4}\% p.a$$

In the Books of Darshan
Journal Entries

Date

Particulars

LF

Amt.(Dr)

Amt.(Cr)

When the bill was retained by Darshan till the date of its maturity

$$2011$$
Jan $$8$$	Varun           Dr To sales a/c		$$40,000$$	$$40,000$$
Jan $$8$$	Bills Receivable A/c                      Dr To Varun (Being acceptance received)		$$40,000$$	$$40,000$$
Mar $$11$$	Cash A/c                         Dr To Bills Receivable A/c (Being payment received on Maturity)		$$40,000$$	$$40,000$$

When Darshan immediately discounted the bill at the rate of $$6\%$$ per annum with his bank

Jan $$8$$	Varun                      Dr To Sales A/c (Being goods sold to varun)		$$40,000$$	$$40,000$$
Jan $$8$$	Bills Receivable A/c                    Dr To Varun (Being acceptance received		$$40,000$$	$$40,000$$
Jan $$8$$	Bank A/c                          Dr Discount A/c                      Dr To Bills Receivable A/c (Being bill discounted with the bank at the rate of $$6\%$$ per annum		$$39,600$$ $$400$$	$$40,000$$

When the bill was endorsed immediately by Darshan in favour of his creditor Suresh

Jan $$8$$	Varun                     Dr To Sales A/c (Being goods sold to Varun)		$$40,000$$	$$40,000$$
Jan $$8$$ Bills	Bills Received A/c                 Dr To Varun (Being acceptance received)		$$40,000$$	$$40,000$$
Jan $$8$$	Suresh                     Dr To Bills Receivable A/c (Being bill endorsed to Suresh)		$$40,000$$	$$40,000$$

Date

Particulars

LF

Amt.(Dr)

Amt.(Cr)

When three days before its maturity, the bill was sent by Darshan to his bank of collection

Jan $$8$$	Varun                  Dr To Sales A/c (Being goods sold to Varun)		$$40,000$$	$$40,000$$
Jan $$8$$	Bills Receivable A/c                  Dr To Varun (Being acceptance received)		$$40,000$$	$$40,000$$
Mar $$8$$	Bill sent for Collection A/c                   Dr To Bills Receivable A/c (Being bill sent for collection)		$$40,000$$	$$40,000$$
Mar $$8$$	Bank A/c                      Dr To Bills Sent for Collection A/c (Being bill met on maturity)		$$40,000$$	$$40,000$$

When the bill was retained by Darshan till the date of its maturity

$$2011$$
Jan $$8$$	Purchase A/c                 Dr To Darshan (Being goods purchased)		$$40,000$$	$$40,000$$
Jan $$8$$	Darshan                   Dr To Bills Payable A/c (Being acceptance given)		$$40,000$$	$$40,000$$
Mar $$11$$	Bills Payable A/c                  Dr To Cash A/c (Being bills payable paid on maturity)		$$40,000$$	$$40,000$$

When Darshan immediately discounted the bill at the rate of $$6\%$$ per annum with his bank

Jan $$8$$	Purchase A/c                    Dr To Darshan (Being goods purchased from Darshan on credit)		$$40,000$$	$$40,000$$
Jan $$8$$	Darshan                Dr To Bills Payable A/c (Being acceptance given)		$$40,000$$	$$40,000$$
Mar $$11$$	Bills Payable A/c             Dr To Bank A/c (Being payment made on maturity)		$$40,000$$	$$40,000$$

Date

Particulars

LF

Amt.(Dr)

Amt.(Cr)

When the bill was endorsed by Darshan immediately in favour of his creditor Suresh

Jan $$8$$	Purchase A/c            Dr To Darshan (Being goods purchased)		$$40,000$$	$$40,000$$
Jan $$8$$	Darshan                      Dr To Bills Payable A/c (Being acceptance given)		$$40,000$$	$$40,000$$
Mar $$11$$	Bills Payable A/c                Dr To Cash A/c (Being payment made on maturity)		$$40,000$$	$$40,000$$

When three days before its maturity, the bill was sent by Darshan to his bank for collection

Jan $$8$$	Purchase A/c                Dr To Darshan (Being goods purchased)		$$40,000$$	$$40,000$$
Jan $$8$$	Darshan                 Dr To Bills Payable A/c (Being acceptance given)		$$40,000$$	$$40,000$$
Mar $$11$$	Bills Payable A/c                Dr To Cash A/c (Being payment made on maturity)		$$40,000$$	$$40,000$$

In the Books of Bhanu
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Jan $$1$$	Bills Receivable A/c                         Dr To Naman (Being accommodation bill received)		$$8,000$$	$$8,000$$
Jan $$1$$	Naman                                 Dr To Bills Payable A/c (Being Naman accepted bill accommodation)		$$8,000$$	$$8,000$$
Jan $$1$$	Bank A/c                            Dr Discount A/c                             Dr To Bills Receivable A/c (Being bill discounted with bank at the rate of $$5\%$$ per annum)		$$7,900$$ $$100$$	$$8,000$$
Apr $$4$$	Bills Payable A/c                  Dr To Bank A/c (Being accommodation bill paid on maturity)		$$8,000$$	$$8,000$$

In the Books of Naman
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Jan $$1$$	Bhanu                                    Dr To Bills Payable A/c (Being Bhanu accepted bill accommodation)		$$8,000$$	$$8,000$$
Jan $$1$$	Bills Receivable A/c                       Dr To Bhanu (Being accommodation bill received)		$$8,000$$	$$8,000$$
Jan $$1$$	Bank A/c                          Dr Discount A/c                         Dr To Bills Receivable A/c (Being bill discounted with bank at a discount of $$5\%$$ )		$$7,900$$ $$100$$	$$8,000$$
Apr $$4$$	Bills Payable A/c                    Dr To Bank A/c (Being accommodation bill paid on maturity)		$$8,000$$	$$8,000$$

In the Books of Vibha
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Jan $$1$$	Sudha                              Dr To Sales A/c (Being goods sold to Sudha)		$$18,000$$	$$18,000$$
Jan $$1$$	Bills Receivable A/c                 Dr To Sudha (Being acceptance received)		$$18,000$$	$$18,000$$
Jan $$1$$	Geeta                         Dr To Bills Receivable A/c (Being acceptance of Sudha endorsed to Geeta)		$$18,000$$	$$18,000$$
Feb $$27$$	Sudha                     Dr To Geeta (Being acceptance of Sudha cancelled before maturity)		$$18,000$$	$$18,000$$
Feb $$27$$	Geeta                           Dr To Cash A/c (Being payment made to Geeta and bill received)		$$18,000$$	$$18,000$$
Feb $$27$$	Bills Receivable A/c             Dr To Sudha To Interest A/c (Being new acceptance received with interest Rs. $$200$$ )		$$18,200$$	$$18,000$$ $$200$$
Mar $$2$$	Cash A/c               Dr To Sudha (Being payment received on maturity)		$$18,200$$	$$18,200$$

In the Books of Gaurav
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Feb $$1$$	Kapil                         Dr To Sales A/c (Being goods sold to Kapil)		$$21,000$$	$$21,000$$
Feb $$1$$	Bills Receivable A/c                Dr To Kapil (Being acceptance received from Kapil)		$$21,000$$	$$21,000$$
Feb $$5$$	Bill Sent for Collection A/c               Dr To Bills Receivable A/c (Being bill sent to the bank for collection)		$$21,000$$	$$21,000$$
Mar $$4$$	Kapil                   Dr To Bill Sent for Collection A/c To Bank A/c (Being bill dishonoured on due date and noting charges paid)		$$21,100$$	$$21,000$$ $$100$$

In the Books of Kapil
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Feb $$1$$	Purchase A/c                 Dr To Gaurav (Being goods purchased from Gaurav on credit)		$$21,000$$	$$21,000$$
Feb $$1$$	Gaurav                        Dr To Bills Payable A/c (Being acceptance given)		$$21,000$$	$$21,000$$
Mar $$4$$	Bills Payable A/c               Dr Noting Charges A/c                Dr To Gaurav (Being bill discharged and noting charges due)		$$21,000$$ $$100$$	$$21,100$$

                                               Journal Entries In the books of Raja 

Date/ SR. No.	Particular	LF	Debit (Rs.)	Credit (Rs.)
1	Cash a/c dr Pradhan a/c dr          To sales a/c (Being goods sold on cash and credit)		10000 30000	40000
2	Bills receivable a/c dr           To Bills receivable a/c dr (Being Bill sent for bank for collection)		30000	30000
3	Bill sent for collection a/c dr           To Bills receivable a/c (Being Bill sent for bank for collection)		30000	30000
4	Pradhans a/c dr            To Bill sent for collection a/c (Being bill cancelled on insolvency)		30000	30000
5	Cash debts a/c dr Bad debts a/c dr             To Pradhans a/c (Being 50% cash recevied on prabhans in insolvency)		15000 15000	30000
			160000	160000

                                                                  In the Books of Raja