ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

Fundamentals of Accounting for CA CPT

CA Foundation : ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

The document ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev is a part of the CA Foundation Course Fundamentals of Accounting for CA CPT.
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Renewal of Bills 

Sometimes the drawee of a bill is not able to meet the bill on due date. He may request the drawer to draw a new Bill for the amount due. Sometimes he pays a certain amount out and accepts a first bill for the balance for which he has to pay a certain amount of interest which is either paid in cash or is included with the fresh bill. This bill is known as Renewal of Bills. That, the amount of the new bill will be face value of the original bill minus cash payment, if any, plus interest for the renewed period. Entries in the books of Drawer and Drawee are shown below:

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev


Illustration 4.

Sunil owed Anil ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 80,000. Anil draws a bill on Sunil for that amount for 3 months on 1st April 2013. Sunil accepts it and returns it to Anil. On 15th April 2013, Anil discounts it with Citi Bank at a discount of 12% p.a. On the due date the bill was dishonoured, the bank paid noting charges of ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 100. Anil settles the bank’s claim along with noting charges in cash. Sunil accepted another bill for 3 months for the amount due plus interest of ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 3,000 on 1st July 2013. Before the new bill became due, Sunil retires the bill with a rebate of ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 500. Show journal entries in books of Anil.

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev
    ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

 

Illustration 5.

On 1st April 2013 Mr. Bala draws a bill of ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 1,20,000 on Mr. Lala for the amount due for 4 months. On getting acceptance, on 5th April 2013, Bala endorses it to Mr. Kala in full settlement of his claim of ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev1,40,000 by paying the difference in cash. Lala approached Bala on 25th July saying that he needed to renew the bill for a further period of 4 months at an interest of 12% p.a. which Bala accepted. A fresh bill including interest was accepted by Lala on 1st August 2013. Bala settled his liability to Kala by cheque. This was duly settled on the due date. Pass journal entries in the books of Bala and Lala. Also show Bills Receivables Account and Bills Payable Account.

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev
  ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

 

Illustration 6.

On 1st January, 2013, P draws three moths bill of exchange for ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 30,000 on his debtor, Q who accepts it on the same date. P discounts the bill on 4th January, 2013 with his bankers, the discount rate being 6% p.a.
On the due date, the bill is dishonored, the noting charges being ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 200. Q immediately makes an offer to P to pay him ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev10,000 cash on account and to settle the balance by agreeing to accept one bill of exchange for ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 12,000 at one month and the other for the balance at three months, the latter including at 12% p.a. for both the bills. P accepts the arrangement. The bill for ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev12,000 is met on the due date, but the other bill is dishonored.
Show Q’s Account and Bills Receivable Account in the books of P.
Solution:

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

Illustration 7.

Short owes Slow ` 6,000 for which the former accepts a three months bill drawn by the latter. Slow immediately discounts the bill with his banker Strong Bank, at 12% p.a. On the due date the bill is dishonoured and Strong Bank pays ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev20 as noting charge.
Short pays ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 1,180 including interest of ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev200 and gives another bill at three months for the balance. Slow endorses the bill to his creditor Slim in full settlement of his debts for ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev5,100. Slim discounts the bill with his banker Strong Bank who charges ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev 40 as discount. Before maturity Short becomes bankrupt and a first and final dividend of 20 paise in a rupee is realized from his estate.
Show the journal entries in the books of Slim and Strong Bank and ledger account of Short in the book of Slow.
Solution:

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev


Retirement of Bill 

Sometimes the drawee pays the bill before the date of maturity. Under the circumstances, the drawer allows certain amount of rebate or discount which is calculated on certain percentage p.a. basis. The rebate is calculated from the date of payment to the date of maturity.
Entries in the books of drawer and drawee are given below :

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

 

Illustration 8.

X bought goods from Y for ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev4,000. Y draws a bill on 1.1.2013 for 3 months which was accepted by X for this purpose. On 1.3.2013, X arranged to retire the bill at a rebate of 12% p.a. Show the entries in the books of X and Y.
Solution:

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

ICAI Notes 7.1 - Bills of Exchange & Promissory Notes (Part - 3) CA Foundation Notes | EduRev

 

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