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Question-1

Name any two types of commonly used negotiable instruments.

Solution:
Cheque and bill of exchange.

Question-2

Write two points of distinction between bills of exchange and promissory note.

Solution:

 

Bill of Exchange

Promissory Note

It is drawn by the creditor

It is drawn by the debtor.

It contains an order to make payment to it. There can be three parties.viz,drawer,the drawee and the payee

It contains a promise to make payment. There are only two parties to it, viz. the drawer and the payee.

 

Question-3

State any four essential features of bill of exchange.

Solution:
A bill of exchange must be in writing and not oral.
  It is an order to make payment.
  The order to make payment is unconditional.
  The maker of the bill of exchange must sign it.

 

Question-4

State the three parties involved in a bill of exchange.

Solution:
Drawer, Drawee and Payee are the three parties involved in a bill of exchange.

Question-5

What is meant by maturity of a bill of exchange?

Solution:
It is the date on which the instrument becomes due for payment.

Question-6

What is meant by dishonour of a bill of exchange?

Solution:
A bill is said to have been dishonoured when the drawee fails to make the payment on the date of maturity.

Question-7

Name the parties to a promissory note

Solution:
There are two parties to a promissory note. Maker or Drawer and Drawee or Payee

Question-8

What is meant by acceptance of a bill of exchange?

Solution:
The drawee accepts the bill prepared by the drawer. This is called acceptance of bill of exchange.

Question-9

What is Noting of a bill of exchange.

Solution:
A bill of exchange should be duly presented for payment on the date of its maturity. The drawee is absolved of his liability if the bill is not duly presented. To prove that the bill was dishonoured, despite its due presentation, it may preferably to be got noted by Notary Public. Noting authenticates the fact of dishonour. For providing this service, a fee is charged by the Notary Public which is called Noting Charges.

Question-10

What is meant by renewal of a bill of exchange?

Solution:
When the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity due to temporary difficulties, he may approach the drawer with the request for extension for time for payment by canceling the old bill and drawing a fresh bill with new terms of payment. This is called renewal of the bill.

Question-11

Give the performa of a Bills Receivable Book.

Solution:

No. of Bill

Date Received

Date of bill

From Whom Received

Drawer

Acceptor

Where Payable

Term

Due Date

Ledger Folio

Amount

Cash Book Folio

Remarks

                         

 

Question-12

Give the performa of a Bills Payable Book.

Solution:

No. of Bill

Date of Bill

To whom given

Drawer

Payee

Where payable

Term

Due date

Ledger Folio

Amount Paid

Date

Cash Book Folio

Remarks

                         

 

Question-13

What is retirement of a bill of exchange?

Solution:
Sometimes the acceptor is prepared to (retire) pay the Bill before the date of maturity. In such a case the drawer may allow him a concession called Rebate or Discount at certain rate calculated on the unexpired period of maturity of the bill. This is called retirement of a bill of exchange.

Question-14

What is meant by insolvency?

Solution:
Insolvency means the inability to pay one's debts as they fall due.

Question-15

Give the meaning of rebate.

Solution:
Sometimes the acceptor is prepared to (retire) pay the Bill before the date of maturity. In such a case the drawer may allow him a concession called Rebate or Discount at certain rate calculated on the unexpired period of maturity of the bill.

Question-16

Give the performa of a Bill of Exchange.

Solution:

 

Mamta                                                                                                       New Delhi

Rs.10,000                                                                                           April 01,2006

Three months after date pay to me or my order, the sum of Rupees Ten Thousand only, for value received.

Stamp

Accepted

(signed)                                                                                                       (Signed)

Jyoti                                                                                                                 Mamta

1.4.2006                                                                                         196, Karol Bagh

73-B, Mahipalpur                                                                                     New Delhi

New Delhi 110 037

                                                                                                             To

                                                                                                             Jyoti

 New Delhi 110 037                                                                                                                73-B, Mahipalpur

 

Question-17

A bill of exchange must contain "an unconditional promise to pay" Do you agree with a statement?

Solution:
According to the Negotiable Instruments Act 1881, a bill of exchange is defined as an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. The following are the features of a bill of exchange:
A bill of exchange must be in writing and not oral.
  It is an order to make payment.
  The order to make payment is unconditional.
  The maker of the bill of exchange must sign it.
  The payment to be made must be certain.
  The date on which payment is made must also be certain.
  The bill of exchange must be payable to a certain person.
  The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time.
  It must be stamped as per the requirement of law.

Question-18

Briefly explain the effects of dishonour and noting of a bill of exchange.

Solution:
A bill of exchange should be duly presented for payment on the date of its maturity. The drawee is absolved of his liability if the bill is not duly presented. Proper presentation of the bill means that it should be presented on the date of maturity to the acceptor during business working hours. To prove that the bill was dishonoured, despite its due presentation, it may preferably to be got noted by Notary Public. Noting authenticates the fact of dishonour. For providing this service, a fee is charged by the Notary Public which is called Noting Charges.The following points are generally noted by the Notary:
Date, fact and reasons of dishonour;
  If the bill is not expressly dishonoured, the reasons why he treats it as dishonoured and;
  The amount of noting charges.

 

Question-19

Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example.

Solution:
When the bill of exchange or a promissory note is not payable on demand, the payment is deferred to the date of maturity of the instrument. It is the date on which the instrument becomes due for payment. In arriving at the maturity date three days, known as days of grace, must be added to the date on which the period of credit expires instrument is payable.

Thus, if a bill dated March 05 is payable 30 days after date it, falls due on April 07, i.e. 33 days after March 05 if it were payable one month after date, the due date would be April 08, i.e. one month and 3 days after March 05. However, where the date of maturity is a public holiday, the instrument will become due on the preceding business day. In this case if April 08, falls on a public holiday then the April 07 will be the maturity date. But when an emergent holiday is declared under the Negotiable Instruments Act 1881, by the Government of India which may happen to be the date of maturity of a bill of exchange, then the date of maturity will be the next working day immediately after the holiday. For example, the Government declared a holiday on April 08 which happened to be the day on which a bill of exchange drawn by Gupta upon Verma for Rs.20,000 became due for payment, Since April 08, has been declared a holiday under the Negotiable Instruments Act, therefore, April 08, will be the date of maturity for this bill.

Question-20

Distinguish between bill of exchange and promissory note.

Solution:
S.No Basis Bill of Exchange Promissory Note
1 Drawer It is drawn by the creditor It is drawn by the debtor.
2 Order/promise It contains an order to make payment to it. There can be three parties.viz,drawer,the drawee and the payee It contains a promise to make payment. There are only two parties to it, viz. the drawer and the payee.
3 Acceptance It requires acceptance by the drawee or someone else on his behalf. It does not require any acceptance.
4 Payee Drawer and payee can be the same party. Drawer cannot be the payee of it.
5 Notice In case of its dishonor due notice of it is to be given by the holder to the drawer. No notice needs to be given in case of its dishonor.

 

Question-21

Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.

Solution:
Sometimes the acceptor is prepared to (retire) pay the Bill before the date of maturity. In such a case the drawer may allow him a concession called Rebate or Discount at certain rate calculated on the unexpired period of maturity of the bill. This discount is a gain to the acceptor and a loss to the drawer.

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.

The following journal entries are recorded:

 

In the books of the holder

On retiring the acceptance and rebate allowed

Cash A/c Dr.

Rebate on bills A/c Dr.

             To Bills Receivables A/c

In the books of the drawee

Bills Payable A/c Dr.

Cash A/c Dr.

           To Rebate on Bills A/c

 

Question-22

Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book.

Solution:
It is used to record the full details of bills received from customers and others. All the details of the bill-date, acceptor’s name, amount, term, place of payment, etc. are entered in the bills receivable book for presentation and further reference. The bills receivable book, like any other subsidiary book, is totaled periodically.

This total is debited to the "Bills Receivable Account" whereas the account of every individual debtor whom the bills received is credited in the ledger. The Bills Receivable Account is the account of an asset and would always have a debit balance. This balance on any date would represent the amount of bills receivable unmatured and on hand.

Question-23

Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger?

Solution:
It is maintained like a bills receivable book. It is meant to record all the details, relating to the bills accepted by a person or a party, which are retained for being use in the future, in case of need.

Entries are made in the bills payable book whenever bills payable are accepted. Immediately, the personal account in the ledger is debited. At the end of the month, the total of bills payable book is posted creditor to whom to the credit of bills payable account in the ledger, thus completing the double entry for bills payable in the ledger.

Question-24

On Jan 01, 2006 Rao sold goods Rs.10,000 to Reddy. Half of the payment was made immediately and for the remaining half Rao drew a bill of exchange upon Reddy payable after 30 days. Reddy accepted the bill and returned it to Rao. On the due date Rao presented the bill to Reddy and received the payment. Journalise the above transactions in the books Rao and prepare of Rao’s account in the books of Reddy.

Solution:
Journal entries in the books of Rao

a) Bills Receivable a/c Dr.    10,000

           To Reddy                                 10,000

(Being Reddy accepting the bill)

b) Bank a/c Dr. 10,000

           To Bills Receivable            10,000

(Being Reddy accepting to pay the bill on maturity)

Rao’s Account in the books of Reddy                                                                                                          

Dr.             

Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Jan 2006

Bills Payable

 

10,000

       

 

Question-25

Vishal sold goods for Rs.7,000 to Manju on Jan 05, 2006 and drewupon her a bill of exchange payable after 2 months. Manju accepted Vishal’s draft and handed over the same to Vishal after acceptance. Vishal immediately discounted the bill with his [email protected]% p.a. On the due date Manju met her acceptance. Journalise the above transactions in the books of Vishal and Manju.

Solution:
Journal entries in the books of Vishal

a) Bills receivable a/c Dr.         7,000

            To Manju                                                7,000

(Being bill raised on Manju)

b) Bank a/c Dr.                          6,860

Discount a/c Dr.                            140

To Bills receivable                                             7,000

(Being bill discounted)

c) Manju a/c Dr.                         7,000

           To Bank                                                  7,000

(Being bill met by Manju on the due date)

Journal entries in the books of Manju

a) Vishal a/c Dr.                          7,000

To Bills Payable                                                 7,000

(Being bill raised by Vishal)

b) Bills Payable a/c Dr.              7,000

To Vishal                                                           7,000

(Being bill met by Manju on due date)

 

Question-26

On Feb 01, 2006, John purchased goods for Rs.15,000 from Jimmi. He immediately made a payment of Rs.5,000 by cheque and for the balance accepted the bill of exchange drawn upon him by Jimmi. The bill of exchange was payable after 40 days. Five days before the maturity of the bill, Jimmi sent the same to his bank for collection. The bank duly presented the bill to John on the due date who met the bill. The bank informed the same to Jimmi. Prepare John’s account in the books of Jimmi and Jimmi account in the books of John.

Solution:
Journal entries in the books of Jimmi

a) John a/c Dr.                                   15,000

              To Sales                                              10,000

(Being goods sold to John)

b) Bank a/c Dr.                                     5,000

               To John                                               5,000

(Being Rs. 5,000 paid by cheque)

c) Bills receivable a/c Dr.                   10,000

              To John                                              10,000

(Being bill raised for the amount to which John owes)

d) Bank a/c Dr.                                   10,000

              To Bills receivable                             10,000

(Being bill met by Mr. John on due date)

Journal entries in the books of John

a) Purchases a/c Dr.                         15,000

             To Jimmi                                               15,000

(Being goods worth Rs. 15,000 purchased from Mr. Jimmi)

b) Jimmi a/c Dr.                                    5,000

           To Bank                                                     5,000

(Being received cheque from Mr. Jimmi)

c) Jimmi a/c Dr.                                    10,000

            To Bills Payable                                     10,000

(Being bill raised for the amount due from Mr. John)

d) Bills Payable a/c Dr.                       10,000

            To Jimmi                                               10,000

(Being bill settled by Mr. Jimmi)

 

Question-27

On Jan 15, 2006, Kartar Sold goods for Rs.30,000 to Bhagwan anddrew upon him three bills of exchanges of Rs.10,000 each payable after one month, two month, and three months respectively. The first bill was retained by Kartar till its maturity. The second bill was endorsed by him in favour of his creditor Ratna and the third bill was discounted by him immediately @ 6% p.a. All the bills were met by Bhagwan. Journalise the above transactions in the books of Kartar and Bhagwan. Also prepare ledger accounts in books of Kartar and Bhagwan.

Solution:
Journal entries in the books of Kartar

a) Bhagwan a/c Dr.                              30,000

               To Sales                                         30,000

(Being goods sold to Bhagwan)

b) Bills receivable a/c Dr.                      30,000

               To Bhagawan                                  30,000

(Being three bills accepted for Rs, 10,000 each payable in one, two and three months respectively)

c) Ratna a/c Dr.                                   10,000

                To Bills Receivable                         10,000

(Being second bill endorsed to Mr. Ratna)

d) Bank a/c Dr.                                     9,850

   Discount a/c Dr.                                    150

   To Bills receivable                                        10,000

(Being third bill discounted @ 6%)

e) Bank a/c Dr.                                   30,000

    To Bills Receivable                                      30,000

(Being all the bills met by Mr. Bhagwan)

                             Bhagwan Account                        

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Jan 2006

Sales

 

30,000

Jan 2006

Bills receivable

 

30,000

     

30,000

     

30,000

Journal entries in the books of Bhagwan

a) Purchases a/c Dr.             30,000

           To Kartar                             30,000

(Being goods purchased from Mr. Kartar on credit)

b) Kartar a/c Dr.                  30,000

           To Bills Payable                    30,000

(Being three bills accepted each after one month, two months and three months respectively)

c) Bills Payable a/c Dr.          30,000

            To Bank                               30,000

(Being all the three bills paid)

 

Kartar Account

Dr.              Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Jan 2006

Bills Payable

 

30,000

Jan 2006

Purchases

 

30,000

     

30,000

     

30,000

 

Question-28

On Jan. 01, 2006 Arun sold goods for Rs.30,000 to Sunil. 50% of thepayment was made immediately by Sunil on which Arun allowed a cash discount of 2%. For the balance Sunil drew a promissory note in favour of Arun payable after 20 days. Since, the date of maturity of bill was a public holiday, Arun presented the bill on a day, as per the provisions of Negotiable Instrument Act which was met by Sunil. State the date on which the bill was presented by Arun for payment and Jounalise the above transactions in the books of Arun and Sunil.

Solution:
Journal entries in the books of Arun

a) Sunil a/c Dr.                               30,000

            To Sales                                       30,000

(Being goods sold to Sunil)

b) Cash a/c Dr.                                14,700

        Discount a/c Dr.                           300

        To Sunil                                            15,000

(Being 50% of the payment paid by cash after allowing 2% discount)

c) Bills receivable a/c Dr.                   15,000

         To Sunil                                            15,000

(being promissory note raised for the remaining amount)

d) Bank a/c Dr.                                 15,000

         To Sunil                                             15,000

(Being payment paid by Sunil)

The date of presenting the bill is the day after the public holiday.

Journal entries in the books of Sunil

a) Purchases a/c Dr.                           30,000

            To Arun                                          30,000

(Being goods purchased from Mr. Arun)

b) Arun a/c Dr.                                   15,000

            To Cash                                         14,700

            To Discount                                         300

(Being cash paid to Mr. Arun after accepting 2% discount)

c) Arun a/c Dr.                                   15,000

            To Bills payable                                15,000

(being bill raised by Mr. Arun)

d) Bank a/c Dr.                                  15,000

            To Bills Payable                                15,000

(Being bill paid in full settlement)

 

Question-29

Darshan sold goods for Rs. 40,000 to Varun on 8.1.2006 and drew upon him a bill of exchange payable after two months. Varun accepted the bill and returned the same to Darshan. On the due date the bill was met by Varun. Record the necessary Journal entries in the books of Darshan and Varun in the following circumstances. When the bill was retained by Darshan till the date of its maturity.
  When Darshan immediately discounted the bill @ 6% p.a. with his bank.
  When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.
  When three days before its maturity, the bill was sent by Darshan to his bank for collection.

 

 


Solution:
Journal entries in the books of Darshan

When the bill was retained till the date of maturity

a) Varun a/c Dr.                               40,000

               To Sales                                             40,000

(Being goods sold to Varun)

b) Bills Receivable a/c Dr.               40,000

               To Varun                                           40,000

(Being bill raised and accepted by Varun)

c) Bank a/c Dr.                                  40,000

                 Bills receivable                                40,000

(Being bill met on the date of maturity)

When the bill was discounted with the bank

a) Varun a/c Dr.                                40,000

                   To Sales                                          40,000

(Being goods sold to Varun)

b) Bills Receivable a/c Dr.                40,000

                    To Varun                                        40,000

(Being bill raised and accepted by Varun)

c) Bank a/c Dr.                                   38,800

Discount a/c Dr.                                    1,200

               To Bills receivable                               40,000

(Being bill discounted @ 6% for 2 months)

d) Bank a/c Dr.                                  40,000

                 To Bills receivables                            40,000

(Being bill met on due date)

When the bill is endorsed in favour of Suresh

a) Varun a/c Dr.                                 40,000

                 To Sales                                              40,000

(Being goods sold to Varun)

b) Bills Receivable a/c Dr.                 40,000

                  To Varun                                           40,000

(Being bill raised and accepted by Varun)

c) Suresh a/c Dr.                                40,000

       To Bills receivable                                       40,000

(Being bill endorsed to mr. Suresh)

d) Varun a/c Dr.                                  40,000

         To Suresh                                                   40,000

(Being the bill amount paid to Mr. Suresh)

Journal entries in the books of Varun in all the three cases

a) Purchases a/c Dr.                          40,000

To Darshan

(being goods purchased from mr. Darshan)

b) Darshan a/c Dr.                              40,000

          To Bills Payable                                         40,000

(Being bill raised and accepted0

c) Bills Payable a/c Dr.                         40,000

            To bank                                                    40,000

(Being bill paid on the due date)

 

Question-30

Bansal Traders allow a trade discount of 10% on the list price of the goods purchased from them. Mohan traders, who runs a retail shop made the following purchases from Bansal Traders.
 
Date Amount (Rs.)
Dec. 21, 2005 1,000
Dec. 26, 2005 1,200
Dec. 18, 2005 2,000
Dec. 31, 2005 5,000

For all the purchases Mohan Traders drew promissory note in favour of Bansal Traders payable after 30 days. The promissory note for the sale of Dec. 21, 2005 was retained by Bansal Traders with them till the date of its maturity. The promissory note drawn on 26.12.2005 was discounted by Bansal Traders from their bank at 12% p.a. The promissory note drawn on Dec. 28, 2005 was endorsed by Bansal Traders in favour of their creditor Dream Soaps in full settlement of a purchase amounting to Rs. 1,900. On 25.1.2006 Bansal Traders sent the promissory note drawn on Dec. 31, 2005 to their bank for collection. All the promissory notes were met by Mohan Traders. Record the necessary journal entries for the above transactions in the books of Bansal Traders and Mohan Traders and prepare Mohan Traders account in the books of Bansal Traders and Bansal Traders account in the books of Mohan Traders.


Solution:
Journal entries in the books of Bansal Traders

Dec 21, 2005

a) Mohan a/c Dr.                                            1,000

                 To Sales                                                          1,000

(Being goods sold to Mr. Mohan)

b) Bills receivable a/c Dr.                              1,000

                  To Mohan                                                       1,000

(Being bill raised)

c) Bank a/c Dr.                                                 1,000

                   To Bills receivable                                          1,000

(Being bill paid on due date)

Dec 26, 2005

a) Mohan a/c Dr.                                                1,200

                      To Sales                                                         1,200

(Being goods sold to Mr. Mohan)

b) Bills receivable a/c Dr.                                   1,200

                          To Mohan                                                   1,200

(Being bill raised)

c) Bank a/c Dr.                                                     1,188

Discount a/c Dr. 12

                           To Bills receivable                                      1,200

(Being bill discounted @ 12% for 1month)

d) Bank a/c Dr.                                                     1,200

                           To Bills receivables                                     1,200

(Being bill met on due date)

Dec 28, 2005

a) Mohan a/c Dr.                                                 2,000

                           To Sales                                                      2,000

(Being goods sold to Mr. Mohan)

b) Bills receivable a/c Dr.                                   2,000

                           To Mohan                                                   2,000

(Being bill raised)

c) Dream Soaps a/c Dr.                                     2,000

                             To Bills receivable                                   2,000

(Being bill endorsed to Dream soaps)

d) Bank a/c Dr.                                                   1,900

Discount a/c Dr.                                                     100

                          To Bills receivable                                      2,000

(being bill dishonoured and accepted)

Dec 31, 2005

a) Mohan a/c Dr.                                                5,000

                            To Sales                                                    5,000

(Being goods sold to Mr. Mohan)

b) Bills receivable a/c Dr.                                   5,000

                             To Mohan                                                5,000

(Being bill raised)

c) Bill sent for collection a/c Dr.                       5,000

                              To Bills receivable                                  5,000

(Being bill sent for collection)

d) Bank a/c Dr.                                                   5,000

                              To Bill sent for collection                      5,000

(Being bill sent for collection collected by the bank)

Journal entries in the books of Mohan

a) Purchases a/c Dr.                                          9,200

                               To Bansal Traders                               9,200

(Being goods purchased on various dates recorded)

b) Bansal Traders a/c Dr.                                  9,200

                              To Bills Payable                                     9,200

(Bring bill payable for all the purchases)

c) Bills payable a/c Dr.                                       9,200

                              To Bansal Traders                               9,200

(Being bills settled by Bansal Traders)

Mohan traders Account

Dr.              Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Dec 21 2005

Sales

 

1,000

Dec 21 2005

Bills receivable

 

1,000

Dec 26 2005

Sales

 

1,200

Dec 26 2005

Bills receivable

 

1,200

Dec 28, 2005

Sales

 

2,000

Dec 28, 2005

Bills receivable

 

2,000

Dec 31, 2005

Sales

 

5,000

Dec 31, 2005

Bills receivable

 

5,000

     

9,200

     

9,200

Bansal traders Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Dec 31 2005

Bills payable

 

9,200

Dec 31, 2005

Purchases

 

9,200

     

9,200

     

9,200

 

Question-31

Narayanan purchased goods for Rs.25,000 from Ravinderan on Feb.01, 2006. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Pass the necessary journal entries in the books of Ravinderan and Narayanan in following cases: When the bill was retained by Ravinderan with him till the date of its maturity.
  When the bill was discounted by Ravinderan immediately with his bank @ 6% p.a.
  When the bill was endorsed to his creditor Ganeshan.
  When the bill was sent by Ravinderan to his bank for collection a few days before it maturity.

 

 


Solution:
Journal entries in the books of Raveenderen

When the bill is retained till the date of maturity

a) Narayanan a/c Dr.                                                25,000

                          To Sales                                                        25,000

(Being goods sold to Narayanan)

b) Bills receivable a/c Dr.                                           25,000

                          To Narayanan                                              25,000

(being bill received and accepted)

c) Narayanan a/c Dr.                                                  25,000

                            To Bills receivable                                       25,000

(Bill dishonoured by Narayanan)

When the bill was discounted @6% p.a.

a) Narayanan a/c Dr.                                                  25,000

                              To Sales                                                      25,000

(Goods sold to Narayanan)

b) Bills receivable a/c Dr.                                            25,000

                               To Narayanan                                            25,000

(Received Narayanan’s acceptance)

c) Bank a/c Dr.                                                             24,875

Discount a/c Dr.                                                                 125

                                 To Bills receivable                                   25,000

(Narayanan’s bill discounted @ 6% p.a.)

d) Narayanan a/c Dr.                                                  25,000

                                 To Bank                                                   25,000

(Discounted bill dishonoured by Narayanan)

When the bill was endorsed to his creditor, Ganeshan

a) Narayanan a/c Dr.                                                   25,000

                                 To Sales                                                  25,000

(Goods sold to Narayanan)

b) Bills receivable a/c Dr.                                             25,000

                                 To Narayanan                                         25,000

(Received Narayanan’s acceptance)

c) Ganeshan a/c Dr.                                                     25,000

                                 To Bills receivable                                  25,000

(Bill endorsed to Mr. Ganeshan)

d) Narayanan a/c Dr.                                                   25,000

                                 To Ganeshan                                         25,000

(endorsed bill dishonoured by Narayanan)

When the bill is sent to the bank for collection

a) Narayanan a/c Dr.                                                   25,000

                                To Sales                                                   25,000

(Goods sold to Narayanan)

b) Bills receivable a/c Dr.                                             25,000

                                 To Narayanan                                        25,000

(Received Narayanan’s acceptance)

c) Bill sent for collection a/c Dr.                                 25,000

                                 To Bills receivable                                   25,000

(Being bill sent for collection)

d) Bank a/c Dr.                                                              25,000

                                 To Bill sent for collection                        25,000

(Being bill sent for collection collected by the bank)

Journal entries in the books of Narayanan

a) Purchases a/c Dr. 25,000

              To Raveenderen           25,000

(Goods purchased from Raveenderen)

b) Raveenderen a/c Dr. 25,000

               To Bills Payable            25,000

Bill accepted by Raveenderen)

c) Bills payable a/c Dr. 25,000

To Raveenderen          25,000

(Accepted bill dishonoured)

 

Question-32

Ravi sold goods for Rs.40,000 to Sudershan on Feb 13, 2006. He drew four bills of exchange upon Sudershan. The first bill was for Rs.5,000 payable after one month. The second bill was for Rs.10,000 payable after 40 days; the third bill was for Rs.12,000 payable after three months and fourth bill was for the balance amount payable after 19 days. Sudershan accepted all the bills and returned the same to Ravi. Ravi discounted the first bill with his bank at 6% p.a. He endorsed the second bill to his creditor Mustaq for the full settlement of a debt of Rs.10,200. The third bill was kept by Ravi with him till the date of maturity. Five days before the maturity of the fourth bill, Ravi sent the bill to his bank for collection. All the four bills were dishounoured by Sudarshan on maturity. Sudershan settled Ravi’s claim in cash three days after the dishonour of each bill along with interest @ 12% p.a. for the terms of the bills. You are requested to record the necessary journal entries in the books to Ravi, Sudershan, Mustaq and bank for the above transaction. Also prepare Sudershan’s account and Mustaq’s account in the books of Ravi.

Solution:
Journal entries in the books of Ravi

a) Sudhershan a/c Dr.                 40,000

               To Sales                             40,000

(Goods sold to Sudershan)

b) Bills receivable 1 a/c Dr.                    5,000

    Bills receivable 2 a/c Dr.                  10,000

    Bills receivable 3 a/c Dr.                  12,000

    Bills receivable 4 a/c Dr.                  13,000

                 To Sudershan                    40,000

(Four bills raised)

c) Bank a/c Dr.                   4,975

Discount a/c Dr.                      25

               To Bills receivable 1              5,000

(bill discounted @ 6% p.a.)

d) Mushtaq a/c Dr.              10,200

              To Bills receivable 2                10,000

              To discount                                 200

(second bill endorsed to Mushtaq)

e) Sudershan a/c Dr.           40,000

              To Bills receivable                   40,000

(All the four bills were dishonoured)

f) Bill sent for collection a/c Dr. 7,000

             To Bills receivable                      7,000

(Fourth bill sent for collection)

g) Bank a/c Dr.                       7,000

             To Bills sent for collection            7,000

(Bill sent for collection collected by the bank)

h) Sudershan a/c Dr.               4,800

             To Interest                                4,800

(Interest charged for the delay in payment of bills)

h) Bills receivable a/c Dr.          44,800

             To Sudershan                            44,800

(all the bills settled along with 12% interest)

Journal entries in the books of Sudershan

a) Purchases a/c Dr.                40,000

                To Ravi                                 40,000

(goods purchased from Ravi)

b) Ravi a/c Dr.                        40,000

               To Bills Payable                     40,000

(Bill raised and accepted)

Sudershan Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Feb 13, 2006

Sales

 

40,000

Feb 13, 2006

Bills receivable 1

Bills receivable2

Bills receivable 3

Bills receivable 4

 

5,000

10,000

12,000

13,000

Feb 2006

Bills receivable

 

40,000

Feb 2006

Bills receivable

 

44,800

Feb 2006

Interest

 

4,800

       
     

84,800

     

84,800

Mushtaq Account

Dr.              Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Feb 13, 2006

Bills receivable 2

Discount

 

10,000

200

Feb 13, 2006

     

 

Question-33

On Jan 01, 2006 Neha sold goods for Rs.20,000 to Muskan and drew upon her a bill of exchange payable after two months. One month before the maturity of the bill Muskan approached Neha to accept the payment against the bill at a rebate @ 12% p.a. Neha agreed to the request of Muskan and Muskan retired the bill under the agreed rate of rebate. Journalise the above transaction in the books of Neha and Muskan.

Solution:
Journal entries in the books of Neha

Jan 01, 2006

a) Muskan a/c Dr.                       20,000

                 To Sales                             20,000

(Goods sold to Muskan)

b) Bills receivable a/c Dr.             20,000

                 To Muskan                         20,000

(Bill raised for the goods sold)

c) Cash a/c Dr.                           19,800

Rebate on bills a/c Dr.                    200

                To Bills receivable              20,000

(Bill retired one month before)

Journal entries in the books of Muskan

Jan 01, 2006

a) Purchases a/c Dr.                 20,000

                 To Neha                          20,000

(Goods purchased from neha)

b) Neha a/c Dr.                       20,000

                To Bills Payable                20,000

(Accepted Neha’s draft payable after 2 months)

c) Bills payable a/c Dr.            20,000

                To Cash                          19,800

             To Rebate on bills                    200

(Acceptance in favour of Neha retired and rebate received @ 12%)

Question-34

On Jan 15, 2006 Raghu sold goods worth Rs. 35,000 to Devendra and drew upto the latter three bills of exchanges. The first bill was for Rs.5,000 payable after one month, the second bill was for Rs.20,000 payable after three months and third bill for balance amount for 4 months. Raghu endorsed the first bill in favour of his creditor Dewan in full settlement of a debt of Rs.5,200. The second bill was discounted by Raghu @ 6 % p.a. and the bill was retained by Raghu till the date of maturity. Devendra dishonoured the bill on maturity and the bank paid Rs. 30 as noting charges. Four days before the maturity of the third bill Raghu, sent the same for collection to his bank. The third bill was also dishonored by Devendra and the bank paid Rs.200 as noting charges. Five days after the dishonour of the bill Devendra paid the entire amount due to Raghu along with interest Rs.1,000 for this purpose Devendra obtained a short term loan from his bank. You are requested to record the necessary journal entries in the books of Raghu Devendra and Dewan and also prepare Devendra’s account in Raghu’s books and Raghu’s account in Devendra’s account.

Solution:
Journal entries in the books of Raghu

Jan 15, 2006

a) Devendra a/c Dr.                              35,000

             To Sales                                         35,000

(Goods sold to Devendra)

b) Bills receivable 1 (1 month) a/c Dr.                 5,000

Bills receivable 2 (3 months) a/c Dr.                  20,000

Bills receivable 3 (4 months) a/c Dr.                  10,000

             To Devendra                                             35,000

(Bills receivable received)

c) Dewan a/c Dr.                                    5,200

            To Bills receivable 1                             5,000

             To Discount                                           200

(First bill endorsed to Dewan)

d) Bank a/c Dr.                                     19,700

             Discount a/c Dr.                              300

            To Bills receivable 2                              20,000

(Second bill discounted @ 6%)

e) Devendra a/c Dr.                               20,030

             To Bank                                           20,030

(Second bill dishonoured and noting charges paid by bank)

f) Bill sent for collection a/c Dr.                10,000

             To Bills receivable 3                           10,000

(Third bill sent for collection)

g) Devendra a/c Dr.                               10,200

             To bank                                             10,200

(third bill dishonoured and noting charges paid by bank)

h) Bank a/c Dr.                                       20,030

             To Devendra                                      20,030

(Second bill paid along with interest by Devendra)

i) Bank a/c Dr.                                         10,200

             To Devendra                                        10,200

(Third bill paid after it wad dishonoured)

j) Interest a/c Dr.                                      1,000

              To Bills receivable                                1,000

(Interest amount paid for the delay in settling the bills)

Devendra Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Jan 2006

Sales

 

35,000

Jan 2006

Bills receivable 1

Bills receivable 2

Bills receivable 3

 

5,000

20,000

10,000

April 15, 2006

Bills receivable 2

Cash

 

20,000

30

April 20, 2006

Bank

 

20,030

May 15, 2006

Bank

 

10,200

May 20, 2006

Bank

 

10,200

     

65,230

     

65,230

Journal entries in the books of Devendra

a) Purchases a/c Dr.                     35,000

           To Raghu                                 35,000

(Goods purchased from Raghu)

b) Raghu a/c Dr.                          35,000

            To Bills payable                       35,000

(Accepted bills from Raghu)

c) Bills payable 2 a/c Dr.              20,000

Noting charges a/c Dr.                       30

            To Raghu                                20,030

(Noting charges paid for dishonor of bill)

d) Bills payable 3 a/c Dr.             10,000

Noting charges a/c Dr.                     200

             To Raghu                               10,200

(Noting charges paid along with the amount due)

e) Interest a/c Dr.                    1,000

          To Raghu                               1,000

(Interest allowed to Devendra)

f) Raghu a/c Dr.                       35,000

         To Bills payable                       35,000

(the entire amount paid to Raghu)

 

Question-35

Viaml purchased goods Rs.25,000 from Kamal on Jan 15, 2006 and accepted a bill of exchange drawn upon him by Kamal payable after two months. On the date of the maturity the bill was duly presented for payment. Vimal dishonoured the bill. record the necessary journal entries in the books of Kamal and Vimal when. The bill was retained by Kamal till the date of its maturity.
  The bill was immediately discounted by Kamal with his bank @ 6% p.a.
  The bill was endorsed by Kamal in favour of his creditor Sharad.
  Five days before its maturity the bill was sent by Kamal to his bank for collection.

 

 


Solution:
Journal entries in the books of kamal

When the bill was retained by Kamal till the date of maturity

Jan 15, 2006

a) Vimal a/c Dr.                       25,000

             To Sales                               25,000

(Goods sold to Vimal)

b) Bills receivable a/c Dr.          25,000

              To Vimal                              25,000

(Bill raised for the goods purchased)

c) Vimal a/c Dr.                       25,000

              To Bills receivable                 25,000

(Bill dishonoured on due date)

When the bill was immediately discounted by Kamal with his bank @ 6%

a) Vimal a/c Dr.                      25,000

                To Sales                           25,000

(Goods sold to Vimal)

b) Bills receivable a/c Dr.         25,000

                 To Vimal                         25,000

(Bill raised for the goods purchased)

c) Bank a/c Dr.                       24,750

Discount a/c Dr.                          250

                  To Bills receivable          25,000

(Bill discounted with the bank @ 6% p.a.)

Vimal a/c Dr. 25,000

To Bank 25,000

(Bill dihonoured by Vimal)

When the bill is endorsed in favour of Sharad

a) Vimal a/c Dr.                       25,000

                   To Sales                       25,000

(Goods sold to Vimal)

b) Bills receivable a/c Dr.          25,000

                    To Vimal                     25,000

(Bill raised for the goods purchased)

c) Sharad a/c Dr.                      25,000

                     To Bills receivable

(Bill endorsed to Sharad)

d) Vimal a/c Dr.                        25,000

                    To Sharad                     25,000

(Endorsed bill dishonoured by Vimal)

When the bill is sent for collection

a) Vimal a/c Dr.                         25,000

                    To Sales                       25,000

(Goods sold to Vimal)

b) Bills receivable a/c Dr.             25,000

                    To Vimal                        25,000

(Bill raised for the goods purchased)

c) Bill sent for collection a/c Dr.    25,000

            To Bills receivable                    25,000

(Bill sent for collection)

Journal entries in the books of Vimal

a) Purchases a/c Dr.          25,000

 To Kamal                                25,000

(goods purchased from Kamal)

b) Kamal a/c Dr.                25,000

To Bills payable                        25,000

(Accepted bill drawn by Kamal)

c) Bills Payable a/c Dr.        25,000

To Kamal                  25,000

(Accepted bill dishonoured)

 

Question-36

Abdula sold goods to Tahir on Jan 17, 2006 for Rs.18,000. He drew a bill of exchange for the same amount on Tahir for 45 days. On the same date Tahir accepted the bill and returned it to Abdulla. On the due date Abdulla presented the bill to Tahir which was dishonoured. Abdulla paid Rs.40 as noting charges. Five days after the dishonour of his acceptance Tahir settled his debt by making a payment of Rs.18,700 including interest and noting charges. Record the necessary journal entries in the books of Abdulla and Tahir. Also prepare Tahir’s account in the books of Abdulla and Abdulla’s account in the books of Tahir.

Solution:
Journal entries in the books of Abdul

a) Tahir a/c Dr.                     18,000

             To Sales                                  18,000

(Goods sold to Tahir)

b) Bills receivable a/c Dr.         18,000

             To Tahir                                   18,000

(Bill raised and accepted)

c) Tahir a/c Dr.                       18,040

               To Bills receivable                    18,000

             To Cash                                          40

(Bill dishonoured on due date and noting charges paid)

d) Bank a/c Dr.                      18,700

                To Bills receivable                    18,700

(bill settled along with interest and noting charges)

Tahir Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Jan 17, 2006

Sales

 

18,000

Jan 17, 2006

Bills receivable

 

18,000

Feb 28, 2006

Bills receivable

Cash

 

18,000

40

       

Journal entries in the books of Tahir

a) Purchases a/c Dr.                   18,000

             To Abdulla                                    18,000

(Goods purchased from Abdulla)

b) Abdulla a/c Dr.                        18,000

             To Bills Payable                           18,000

(Bill raised for the goods purchased)

c) Bills Payable a/c Dr.                18,000

Noting charges                                     40

To Abdulla                18,040

(accepted bill dishonoured)

d) Bills payable a/c Dr.               18,700

                            To bank                       18,700

(Dishonoured bill paid along with interest and noting charges)

Abdulla Account

Dr.            

Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Jan 17, 2006

Bills Payable

 

18,000

Jan 17, 2006

Purchases

 

18,000

       

Feb 28, 2006

Bills Payable

Noting charges

 

18,000

40

 

Question-37

Asha sold goods worth Rs.19,000 to Nisha on March 02, 2006. Rs.4,000 were paid by Nisha immediately and for the balance she accepted a bill of exchange drawn upon her by Asha payable after three months. Asha discounted the bill immediately with her bank. On the due date Nisha dishonoured the bill and the bank paid Rs.30 as noting charges. Record the necessary journal entries in the books of Asha and Nisha.

Solution:
Journal entries in the books of Asha

a) Nisha a/c Dr.                        19,000

                 To Sales                           19,000

(Goods sold to Nisha)

b) Cash a/c Dr.                           4,000

                 To Nisha                              4,000

(Out of the sales, Rs.4,000 was paid immediately by Nisha)

c) Bills receivable a/c Dr.              15,000

                  To Nisha                              15,000

(Bill raised for the remaining amount)

d) Nisha a/c Dr.                           15,000

                   To Bank                               15,000

(Discounted bill dishnoured by Nisha)

e) Nisha a/c Dr.                           15,030

                  To Bills receivable                 15,000

                  To bank                                     30

(Bill dishonoured and noting charges paid by bank)

Journal entries in the books of Asha

a) Purchases a/c Dr.                    19,000

                  To Nisha                             19,000

(Goods sold to Nisha)

b) Nisha a/c Dr.                           4,000

                 To Cash                                4,000

(Immediate payment to the tune of Rs. 4,000)

c) Nisha a/c Dr.                           15,000

                 To Bills Payable                      15,000

(Bill raised and accepted)

d) Bills payable a/c Dr.                 15,000

Noting charges a/c Dr.                        30

                  To Nisha                               15,030

(Bill dishonoured and noting charges paid by the bank)

Question-38

On Feb. 02, 2006, Verma purchased from Sharma goods for Rs.17,500. Verma paid Rs.2,500 immediately and for the balance gave a promissory note to Sharma payable after 60 days. Sharma immediately endorsed the promissory note in favour of his creditor. Gupta for the full settlement of a debt of Rs.15,400. On the due date of the bill Gupta presented the bill to Verma which the latter dishonoured and Gupta paid Rs.5,000 noting charges. On the same date Gupta informed Sharma about the dishonour of the bill. Sharma settled his debt to Gupta by cheque for Rs.15,500 which includes noting charges and interest. Verma settled Sharma’s claim by cheque for the same amount. Record the necessary journal entries is the books of Sharma, Gupta and Verma for the above transaction and prepare Verma’s and Gupta’s accounts in the books of Sharma. Sharma’s account in the books of Verma. And also Sharma’s account in the books of Gupta.

Solution:
Journal entries in the books of Sharma

a) Verma a/c Dr.                       17,500

             To Sales                              17,500

(Goods sold to Verma)

b) Cash a/c Dr.                           2,500

             To Verma                              2,500

(Immediate payment for the goods sold)

c) Bills receivable a/c Dr.           15,000

              To Verma                           15,000

(Bill raised for the remaining amount)

d) Gupta a/c Dr.                        15,000

             To Bills receivable                15,000

(Bill endorsed to Gupta)

e) Verma a/c Dr.                       20,000

            To Bills receivable                 15,000

            To Gupta                                5,000

(Verma dishonoured his acceptance on maturity and endorsee paying the noting charges)

f) Gupta a/c Dr.                        15,500

             To bank                                15,500

(Sharma paying the balance he owes to Gupta by paying cheque)

g) Verma a/c Dr.                       15,500

              To Bills receivable                  15,500

(Verma paying his dues towards the bill raised)

Journal entries in the books of Verma

a) Purchases a/c Dr.                 17,500

               To Sharma                            17,500

(Goods purchased from Sharma)

b) Sharma a/c Dr.                      2,500

                To Cash                                2,500

(Cash paid to settle initially)

c) Sharma a/c Dr                     15,000

                 To bills Payable                   15,000

(Bill raised for the remaining amount)

d) Bills payable a/c Dr.            15,000

    Noting charges a/c Dr.           5,000

     To Sharma                                     20,000

 

Question-39

Lilly sold goods to Methew on 1.3.2006 for Rs.12,000 and drew upon Methew a bill of exchange for the same amount payable after two months. Lilly immediately discounted the bill with her bank at 9% p.a. The maturity date of the bill was a non business day (holiday), therefore, Lilly had to present the bill as per the provisions of the Indian Instruments Act.1881. The bill was dishonoured by Methew and Lilly paid Rs.45 as noting charges. Methew settled the claim of Lilly five days after the disonour of the bill by a cheque, whch includes interest @ 12% for the term of the bill. Journalise the above transactions in the books of Lilly and Methew and prepare Mathew’s account in the books of Lilly and Lilly’s account in the books of Mathew.

Solution:
Journal entries in the books of Lily

a) Mathew a/c Dr.                              12,000

                   To Sales                                 12,000

(Goods sold to Mathew)

b) Bills receivable a/c Dr.                     12,000

                   To Mathew                               12,000

(Bill raised and accepted)

c) Bank a/c Dr.                                   11,820

Discount a/c Dr.                                       180

                   To Bills receivable                    12,000

(Bill discounted @ 9% at the bank)

d) Mathew a/c Dr.                              12,045

                     To Bank                                 12,000

                     To cash                                        45

(Bill dis-honoured and noting charges paid by Lily)

e) Bank a/c Dr.                                 12,285

           To Bills receivable                            12,285

(bill paid along with 12% interest)

Journal entries in the books of Mathew

a) Purchases a/c Dr.             12,000

              To Lily                           12,000

(Goods purchased from Lily)

b) Lily a/c Dr.                      12,000

              To Bills Payable              12,000

(Bill raised for the purchase made and accepted)

c) Bills payable a/c Dr.          12,000

Noting chargesa/c Dr.                          45

               To Lily                          12,045

(Bill dishonoured and noting charges paid by Lily)

d) Lily a/c Dr.                       12,285

                To Bills payable              12,285

(Bill settled after paying 12% interest)

Question-40

Kapil purchased goods for Rs.21,000 from Gaurav on 1.2.2006 and accepted a bill of exchange drawn by Gaurav for the same amount. The bill was payable after one month. On 25.2.2002 Gaurav sent the bill to his bank for collection. The bill was duly presented by the bank. Kapil dishonoured the bill and the bank paid Rs.100 as noting charges. Record the necessary journal entries for the above transactions in the books of Kapil and Gourav.

Solution:
Journal entries in the books of Gaurav

Feb 01, 2006

a) Kapil a/c Dr.                              21,000

            To Sales                                        21,000

(Goods sold to Kapil)

b) Bills receivable a/c Dr.               21,000

            To Kapil                                       21,000

(Bill raised for the goods sold)

c) Bill sent for collection a/c Dr.       21,000

           To Bills receivable                          21,000

(Bill sent to the bank for collection before maturity)

d) Bank a/c Dr.                              21,000

            To Bill sent for collection                21,000

(Bill has been collected by the bank)

e) Kapil a/c Dr.                             21,100

             To bank                                      21,100

(Bill dihonoured by the drawee on the due date and noting charges paid by the bank)

Journal entries in the books of Kapil

a) Purchases a/c Dr.                     21,000

              To Gaurav                                 21,000

(Goods purchased from Mr. Gaurav)

b) Gaurav a/c Dr.                        21,000

              To Bills Payable                         21,000

(Bill accepted )

c) Bills Payable a/c Dr.                21,000

Noting charges a/c Dr.                     100

             To Gaurav                                  21,100

(Accepted bill dishonoured and noting charges paid by the bank)

Question-41

On Feb. 14, 2006 Rashmi sold good Rs.7,500 to Alka. Alka paid Rs.500 in cash and for the bank balance accepted a bill of exchange drawn upon her by Rashmi payable after two months. On Apr.10, 2006 Alka approached Rashmi to cancel the bill since she was short of funds. She further requested Rashmi to accept Rs.2,000 in cash and draw a new bill for the balance including interest Rs.500. Rashmi accepted Alka’s request and drew a new bill for the amount due payable after 2 months. The bill was accepted by Alka. The new bill was duly met by Alka on maturity. Record the necessary journal entries in the books of Rashmi and Alka and prepared Alka’s account in the books of Rashmi’s and Rashmi’s account in the books of Alka’s

Solution:
Journal entries in the books of Rashmi

Feb 14, 2006

a) Alka a/c Dr.                        7,500

                To Sales                         7,500

(Goods sold to Alka)

b) Cash a/c Dr.                         500

                To Alka                             500

(Cash paid by Alka for the purchases made)

c) Bills receivable a/c Dr.          7,000

                To Alka                          7,000

(Bill raised for the remaining amount)

April 10, 2006

d) Alka a/c Dr.                         7,500

               To Bills receivable             7,000

               To Interest                          500

(Old bill cancelled on the request of Alka due to non available of funds)

e) Cash a/c Dr.                        2,000

              To Alka                              2,000

(Cash paid by Alka for the amount due)

April 14, 2006

f) Bills receivable a/c Dr.           5,500

                To Alka                            5,500

(new bill raised for the remaining amount)

June 14, 2006

g) Bank a/c Dr.                         5,500

                To Bills receivable              5,500

(New bill met on due date)

Alka Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Feb 14, 2006

Sales

 

7,500

Feb 14, 2006

Cash

 

500

April 10, 2006

Bills receivable

 

7,000

 

Bills receivable

 

7,000

April 10, 2006

Interest

 

500

April 14, 2006

Cash

 

2,000

       

April 14, 2006

Bills receivable

 

5,500

     

15,000

     

15,000

Journal entries in the books of Alka

Feb 14, 2006

a) Purchases a/c Dr.                      7,500

                 To Rashmi                               7,500

(Goods purchased from Rashmi)

b) Rashmi a/c Dr.                              500

                 To Cash                                      500

(Paid cash to Rashmi)

c) Rashmi a/c Dr.                             7,000

                  To Bills Payable                         7,000

(Bill accepted)

d) Bills Payable a/c Dr.                      7,000

Interest a/c Dr.                                   500

                    To Rashmi                               7,500

(Bill cancelled due to dishonor of bill)

e) Rashmi a/c Dr.                               2,000

                    To Cash                                    2,000

(Paid cash to Rashmi)

April 14, 2006

f) Rashmi a/c Dr.                               5,500

                   To Bills Payable                          5,500

(New bill raised for the remaining amount)

g) Bills payable a/c Dr.                       5,500

                   To bank                                      5,500

(New bill met on due date)

Rashmi Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Feb 14, 2006

Cash

 

500

Feb 14, 2006

Purchases

 

7,500

April 10, 2006

Bills Payable

 

7,000

 

Bills Payable

 

7,000

         

Interest

 

500

April 14, 2006

Cash

 

2,000

       

April 14, 2006

Bills Payable

 

5,500

       
     

15,000

     

15,000

 

Question-42

Nikhil sold goods for Rs.23,000 to Akhil on Dec. 01, 2005. He drew upon Akhil a bill of exchange for the same amount payable after 2 months. Akhil accepted the bill and sent it back to Nikhil. Nikhil discounted the bill immediately with his bank @12 p.a. On the due date Akhil dishonoured the bill of exchange and the bank paid Rs.100 as noting charges. Akhil requested Nikhil to draw a new bill upon him with interest @10% p.a. which he agreed. The new bill was payable after two months. A week before the maturity of the second bill Akhil requested Nikhil to cancel the second bill. He further requested to accept Rs.10,000 in cash immediately and drew a third bill upon him including interest of Rs.500. Nikhil agreed to Akhil’s request. The third bill was payable after one month. Akhil met the third bill on its maturity. record the necessary journal entries in the books of Nikhil and Akhil and also prepare Akhil’s account in the books of Nikhil and Nikhil’s account in the books of Akhil.

Solution:
Journal entries in the books of Nikhil

Dec 01, 2005

a) Akhil a/c Dr.                               23,000

              To Sales                                   23,000

(Goods sold to Akhil)

b) Bills receivable a/c Dr.                 23,000

               To Akhil                                   23,000

(Bill raised for the goods sold)

c) Bank a/c Dr.                               22,540

Discount a/c Dr.                                  460

               To Bills receivable                     23,000

(Bill discounted with the bank @ 12% p.a.)

Feb 01, 2005

d) Akhil a/c Dr.                              23,100

               To bank                                  23,100

(Bill dishonoured on due date and noting charges paid by bank)

e) Akhil a/c Dr.                              385

               To interest                             385

(Interest due from Akhil)

f) Bills receivable a/c Dr.                  23,485

               To Akhil                                   23,485

(New bill raised after dishonor of the first bill)

Jan 25, 2005

g) Akhil a/c Dr.                                23,485

               To Bills receivable                       23,485

(The bill cancelled on due date)

h) Cash a/c Dr.                                10,000

                 To Akhil                                   10,000

(Cash paid by Akhil to Nikhil)

i) Akhil a/c Dr.                                      500

                  To interest                                   500

(Interest due from Akhil)

j) Bills receivable a/c Dr.                     13,985

                    To Akhil                                  13,485

                   To Interest                                    500

(New bill raised for the remaining amount along with interest)

k) Bank a/c Dr.                                   13,985

                     To Bills receivable                     13,985

(Third bill met on maturity)

Akhil Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Dec 01, 2005

Sales

 

23,000

Dec 01, 2005

Bills receivable

 

23,000

Feb 01, 2005

Bank

 

23,100

Feb 01, 2005

Bills receivable

 

23,485

 

Interest

 

385

Jan 25, 2005

Cash

 

10,000

Jan 25, 2005

Bills receivable

 

23,485

April 2005

Bills receivable

 

13,985

 

Interest

 

500

       
     

70,470

     

70,470

Journal entries in the books of Akhil

Dec 01, 2005

a) Purchases a/c Dr.                                23,000

                      To Nikhil                                              23,000

(Goods purchased from Nikhil)

b) Nikhil a/c Dr.                                       23,000

                      To Bills payable                                    23,000

(Bill raised and accepted)

Feb 01, 2005

c) Bills payable a/c Dr.                              23,000

Noting charges a/c Dr.                                   100

                     To Nikhil                                              23,100

(Accepted bill dishonoured on due date)

d) Interest a/c Dr.                                       385

                    To Nikhil                                                   385

(Interest due to Nikhil)

e) Nikhil a/c Dr.                                      23,485

                     To Bills Payable                                   23,485

(New bill raised after the first bill was dishonoured on due date)

Jan 25, 2005

f) Bills payable a/c Dr.                             23,485

                       To Nikhil                                           23,485

(Second bill cancelled)

g) Nikhil a/c Dr.                                      10,000

                       To Cash                                            10,000

(Cash paid to Nikhil)

h) Interest a/c Dr.                                       500

                       To Nikhil                                                500

(Interest due to the drawer)

i) Nikhil a/c Dr.                                       13,985

                       To Bills Payable                                  13,985

(New bill raised along with interest)

j) Bills Payable a/c Dr.                            13,985

                       To Bank                                             13,985

(Bill met on maturity)

Nikhil Account

Dr.             Cr.

Date

Particulars

J.F

Amount(Rs)

Date

Particulars

J.F

Amount(Rs)

Dec 01, 2005

Bills Payable

 

23,000

Dec 01, 2005

Purchases

 

23,000

Feb 01, 2005

Bills Payable

 

23,485

Feb 01, 2005

Bills Payable

 

23,000

Jan 25, 2005

Cash

 

10,000

Feb 01, 2005

Noting charges

 

100

Jan 25, 2005

Bills Payable

 

13,985

Feb 01, 2005

Interest

 

385

       

Jan 25, 2005

Bills Payable

 

23,485

         

Interest

 

500

     

70,470

     

70,470

 

Question-43

On Jan 01, 2006 Vibha sold goods worth Rs.18,000 to Sudha and drew upon the latter a bill of exchange for the same amount payable after two months. Sudha accepted Vibha’s draft and returned the same to Vibha after acceptance. Vibha endorsed the bill immediately in favour of her creditor Geeta. Five days before the maturity of the bill Sudha requested Vibha to cancel the bill since she was short of funds. She further requested to draw a new bill upon her including interest of Rs.200. Vibha accepted Sudha’s request. Vibha took the bill from Geeta by making the payment to her in cash and cancelled the same. Then she drew a new bill upon Sudha as agreed. The new bill was payable after one month. The new bill was duly met by Sudha on maturity. Record the necessary journal entries in the books of Vibha.

Solution:
Journal entries in the books of Vibha

Jan 01, 2006

a) Sudha a/c Dr.                            18,000

                To Sales                                18,000

(Goods sold to Sudha)

b) Bills receivable a/c Dr.                 18,000

                 To Sudha                               18,000

(Bill raised and accepted)

c) Geeta a/c Dr.                             18,000

           To Bills receivable                         18,000

(Bill endorsed to geeta)

Feb 24, 2006

d) Sudha a/c Dr.                            18,000

          To Bills Receivable                       18,000

(Bill cancelled five days before maturity)

e) Sudha a/c Dr.                      200

           To Interest                          200

(Interest charged for the new bill)

f) Cash a/c Dr.                             18,000

           To Geeta                                   18,000

(Cash paid to Geetha and Vibha’s account with Geeta settled)

March 01, 2006

g) Bills receivable a/c Dr.              18,200

          To Sudha                                   18,200

(New bill raised along with interest amount)

April 01, 2006

h) Bank a/c Dr.                           18,200

          To Bills receivable                      18,200

(new bill met on due date)

Question-44

On Jan. 01, 2006 Harsh accepted a months bill for Rs. 10,000 drawn on him by tanu for latter’s benefit. Tanu discounted the bill on same day @ 8% p.a On the due date tanu sent a cheque to Harsh for honour the bill. Harsh duly honoured his acceptance. Record the journal entries in the Books of Tanu and Harsh.

Solution:
Journal entries in the books of Tanu

Jan 01, 2006

a) Bills receivable a/c Dr.                      10,000

                     To Harsh                                  10,000

(Bills raised and accepted by Harsh)

b) Bank a/c Dr.                                  9,934

Discount a/c Dr.                                     66

                    To Bills receivable                      10,000

(Discounted the bill with the bank)

Feb 01, 2006

c) Bank a/c Dr.                                 10,000

                    To Bills receivable                     10,000

(Bill me on the due date)

Journal entries in the books of Harsh

Jan 01, 2006

a) Tanu a/c Dr.                                10,000

                   To Bills Payable                          10,000

(Bill raised and accepted)

Feb 01, 2006

b) Bills Payable a/c Dr.                     10,000

                   To bank                                      10,000

(Bill met by the drawee on due date)

Question-45

Ritesh and Naina were in need of funds temporarily. On August 01 2005 Ritesh drew upon Naina a bill for Rs. 12,000 for 4 months. Naina Accepted the bill and returned to Ritesh. Ritesh discounted the Bill @ 8% p.a. Half amount of the discounted bill remitted to Naina. On due date, Ritesh sent the required sum to Naina, who met the bill. Journalise the transaction in the books of both the parties.

Solution:
Journal entries in the books of Ritesh

Aug 01, 2005

a) Bills receivable a/c Dr.                12,000

              To Naina                                   12,000

(Bill raised on naina)

b) Bank a/c Dr.                             11,680

Discount a/c Dr.                                320

              To Bills receivable                      12,000

(Bill discounted with the bank)

Dec 01, 2005

c) Naina a/c Dr.                           6,000

              To Cash                                    5,840

              To Discount                                  160

(Half the proceeds remitted to Naina)

Dec 01, 2005

d) Naina a/c Dr.                           6,000

               To Cash                                  6,000

(Half the amount of the bill sent to Naina to enable him to meet it)

Journal entries in the books of Naina

Aug 01, 2005

a) Ritesh a/c Dr.                         12,000

                 To Bills Payable                    12,000

(Bill accepted)

b) Cash a/c Dr.                            5,840

Discount a/c Dr.                             160

                 To Ritesh                              6,000

(Amount received from Ritesh)

Dec 01, 2005

c) Cash a/c Dr.                            6,000

                 To Ritesh                              6,000

(Bill met on maturity)

d) Bills payable a/c Dr.                 12,000

                 To Bank                                12,000

(Acceptance honoured)

 

Question-46

On Jan. 01, 2006, bhanu and Naman drew on each other a bill for Rs. 8,000 payable 3 months after the due date for their Mutual benefit. On January 02 they discounted with their bank each other’s bill at 5% p.a. on the due date each met his Own’s acceptance. Give journal entry in the books of Bhanu and Naman.

Solution:
Journal entries in the books of Bhanu

Jan 01, 2006

a) Bills receivable a/c Dr.         8,000

                 To Naman                     8,000

(Bill raised on Naman)

b) Bank a/c Dr.                      7,900

Discount a/c Dr.                       100

                To Bills receivable           8,000

(Bill discounted with the bank)

c) Bank a/c Dr.                       8,000

                 To Bills receivable          8,000

(Bill met on the due date)

d) Naman a/c Dr.                    8,000

                 To Bills Payable             8,000

(Bill raised by Naman on Bhanu)

e) Bank a/c Dr.                      8,000

                To Bills receivable           8,000

(Bill met on due date by Naman)

f) Bills Payable a/c Dr.           8,000

               To Bank                         8,000

(Bill met on maturity)

Journal entries in the books of Naman

Jan 01, 2006

a) Bhanu a/c Dr.                  8,000

                 To Bills Payable            8,000

(Bill accepted)

b) Bills Payable a/c Dr.          8,000

                 To Bank                       8,000

(Accommodation bill received)

c) Bills receivable a/c Dr.       8,000

                 To Bhanu                    8,000

(Bill raised)

d) Bank a/c Dr.                    7,900

Discount a/c Dr.                     100

             To Bills receivable             8,000

(Bill discounted with the bank)

e) Bank a/c Dr.                     8,000

           To Bills receivable               8,000

(Bill met on due date by Naman)

f) Bills Payable a/c Dr.           8,000

            To Bank                            8,000

(Bill met on maturity)

 

Question-47

On Nov. 01, 2005 Sonia drawn a bill on sunny for Rs. 15,000 for 3 months for mutual accommodation. Sunny accepts the bill and return it to sonia. Sonia discounted the same with his bankers @ 6% p.a. The proceeds are shared between sonia and sunny in proportion of 2/3rd, 1/3rd respectively. On the due date sonia remits his proportion to sunny who fails to met the bill and as a result sonia has to meet it. Sunny Give a fresh acceptance for the amount due to sonia plus interest of Rs. 100 sunny meet his second acceptance on due date. Record the necessary journal entries in the books of sonia and sunny.

Solution:
Journal entries in the books of Sonia

Nov 01, 2005

a) Bills Receivable a/c Dr.           15,000

               To Sunny                             15,000

(Bill raised on Sunny)

b) cash a/c Dr.                         14,775

Discount a/c Dr.                           225

              To Bills receivable                 15,000

(Bill discounted with the bank @ 6%)

Feb 01, 2006

c) Sunny a/c Dr                        15,000

               To Cash                             15,000

(Entire amount paid by Sonia on due date)

d) Sunny a/c Dr.                         5,000

               To Bills receivable               5,000

(Sunny failed to pay the remaining amount on due date)

e) Bills receivable a/c Dr.             5,100

               To Sunny                           5,000

               To Interest                           ; 100

(Fresh bill raised along with interest amount)

f) Bank a/c Dr.                            5,100

              To Bills receivable                 5,100

(Bill met on maturity)

Journal entries in the books of Sunny

Nov 01, 2005

a) Sonia a/c Dr.                         15,000

              To Bills Payable                    15,000

(Accepted accommodation bill)

b) Sonia a/c Dr.                            5,100

              To Bills Payable                       5,100

(New bill raised for the remaining amount)

c) Bills Payable a/c Dr.                   5,100

              To Sonia                                  5,100

(New bill met by Sunny on due date along with interest)

 





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