On first July 2018 X sold goods to why valued 40000 taking therefore a...
Transaction Overview
On July 1, 2018, X sold goods valued at 40,000 to Y with a bill of exchange maturing in three months. The details of subsequent transactions are as follows:
Bill Discounting
- On August 1, 2022, X discounted the bill at a 15% annual interest rate.
- Maturity value of the bill: 40,000.
- Discount for 3 months:
- Calculation: 40,000 * 15% * (3/12) = 1,500.
- Amount received after discounting:
- 40,000 - 1,500 = 38,500.
Dishonor of Bill
- At maturity, the bank dishonored the bill, incurring expenses of 200.
- Cash payment made by Y: 10,000.
New Bill Issued
- X received a new bill from Y for 30,000 at 18% per annum for 2 months.
- Interest on new bill:
- Calculation: 30,000 * 18% * (2/12) = 900.
Bankruptcy of Y
- Before the maturity of the new bill, Y declared bankruptcy.
- X’s credit in the books is recorded as 75,500.
Journal Entries
The following journal entries should be recorded in X’s books:
- For the Sale of Goods:
- Debit: Accounts Receivable (Y) 40,000
- Credit: Sales 40,000
- For Discounting the Bill:
- Debit: Cash 38,500
- Debit: Discount on Bills 1,500
- Credit: Accounts Receivable (Y) 40,000
- For Dishonor of Bill:
- Debit: Accounts Receivable (Y) 40,200
- Credit: Cash 10,000
- Credit: Expenses 200
- Credit: Discount on Bills 30,000
- For New Bill Received:
- Debit: Accounts Receivable (Y) 30,900
- Credit: New Bill Receivable 30,000
- Credit: Interest Income 900
- For Bankruptcy:
- Debit: Loss on Bankruptcy 75,500
- Credit: Accounts Receivable (Y) 75,500
This outlines the transactions and necessary journal entries following the sequence of events.
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