Test: Bills Of Exchange And Promissory - 1 - Commerce MCQ

# Test: Bills Of Exchange And Promissory - 1 - Commerce MCQ

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## 30 Questions MCQ Test - Test: Bills Of Exchange And Promissory - 1

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Test: Bills Of Exchange And Promissory - 1 - Question 1

### Mohan drew a bill on Shyam for Rs. 50,000 for 3 months. Proceeds are to be shared equally. Mohan got the bill discounted @ 12% p.a. and remits required proceeds to Shyam. The amount of such remittance will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 1

50000 × 12% ×3/12=1500=50000-1500 =48500(All partners equally)=48500/2 =24250.

Test: Bills Of Exchange And Promissory - 1 - Question 2

### On 1st January 2006, Vimal sold goods worth Rs. 20,000 to Renu and drew a bill on Renu for 3 months. Renu accepted the bill and returned it to Vimal who discounted the bill with, bank on 4th February 2006 @ 15% p.a. The discounting charges will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 2

Given:
- Vimal sold goods worth Rs. 20,000 to Renu on 1st January 2006.
- A bill was drawn on Renu for 3 months.
- Renu accepted the bill and returned it to Vimal.
- Vimal discounted the bill with the bank on 4th February 2006 at 15% p.a.
To find: The discounting charges
Calculation:
- The bill is drawn for 3 months, which means it will mature after 3 months from 1st January 2006.
- The maturity date of the bill will be 1st April 2006.
- The time period between 4th February 2006 and 1st April 2006 is 2 months.
Formula:
Discounting charges = (Bill amount * Rate of interest * Time) / 100
Substituting the given values:
Discounting charges = (Rs. 20,000 * 15% * 2) / 100
Discounting charges = Rs. 6,000
Therefore, the discounting charges will be Rs. 6,000.
Hence, the correct answer is option C: Rs. 500.
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Test: Bills Of Exchange And Promissory - 1 - Question 3

### A bill of exchange includes.

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 3

A bill of exchange often includes three parties—the drawee is the party that pays the sum, the payee receives that sum, and the drawer is the one that obliges the drawee to pay the payee. A bill of exchange is used in international trade to help importers and exporters fulfill transactions.

Test: Bills Of Exchange And Promissory - 1 - Question 4

On 1.8.05 X draws a bill Y “for 30 days after sight”. The date of acceptance is 8.8.05. The due date of the bill will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 4

The correct option is Option B.

On 1st August 2005, X draws a bill Y “for 30 days after sight”. The date of acceptance is 8th August, 2005. So, the due date of the bill will be 10.9.05

Test: Bills Of Exchange And Promissory - 1 - Question 5

A bill of Rs. 12,500 drawn by Shyam is accepted by Ram & Shyam gets its discounted @ 12% p.a. due 3 months hence. The discounting charges borne by Shyam is :

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 5

Given:
Bill amount (B) = Rs. 12,500
Discount rate (R) = 12% p.a.
Time (T) = 3 months
To find: Discounting charges borne by Shyam
Formula:
Discount (D) = B * R * T / 100
Calculation:
Substituting the given values into the formula, we get:
D = 12,500 * 12 * 3 / 100
D = 4,500
Therefore, the discounting charges borne by Shyam is Rs. 4,500.
Conclusion:
The correct option is A: Rs. 375.
Test: Bills Of Exchange And Promissory - 1 - Question 6

Dishonour of a bill is recorded in

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 6
Dishonour of a bill is recorded in the Bills Receivable Book. Here is a detailed explanation:
Bills Receivable Book:
- The Bills Receivable Book is a subsidiary book that records all the bills received by a company.
- It is used to keep track of the bills that are due to be received by the company from its debtors.
- When a bill is dishonored, it means that the debtor has failed to make the payment on the due date.
- Dishonored bills need to be recorded in the Bills Receivable Book to maintain accurate and up-to-date records of the company's financial transactions.
Other Options:
- Cash Book: The Cash Book is a subsidiary book that records all cash transactions. It is used to record the inflow and outflow of cash.
- Sales Book: The Sales Book is a subsidiary book that records all sales made by the company. It is used to keep track of the sales revenue generated.
- Purchase Book: The Purchase Book is a subsidiary book that records all purchases made by the company. It is used to keep track of the expenses incurred for purchasing goods or services.
Conclusion:
In conclusion, the dishonor of a bill is recorded in the Bills Receivable Book. This book is specifically used to record all bills received by the company and is essential for maintaining accurate financial records.
Test: Bills Of Exchange And Promissory - 1 - Question 7

The purpose of Accommodation bill is

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 7
Purpose of Accommodation Bill:

The purpose of an accommodation bill is to:

A. Finance actual purchase or sale of goods:
- An accommodation bill does not finance the actual purchase or sale of goods. It is not directly related to the transaction itself.
- An accommodation bill is used to facilitate the transfer of funds between parties involved in a business transaction.
- It helps in providing short-term financial assistance when one party needs funds to complete a trade.
C. Help when both parties are in need of funds:
- The primary purpose of an accommodation bill is to provide financial assistance when both parties involved in a trade require funds.
- It helps in maintaining the flow of trade by providing temporary financial support to the parties involved.
D. None of the above:
- This option is incorrect as the accommodation bill serves a specific purpose in facilitating trade finance.
Therefore, the correct answer is C. When both parties are in need of funds.
Test: Bills Of Exchange And Promissory - 1 - Question 8

If due date of a bill is a public holiday then its due date will :

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 8

If due date falls on a public holiday, the due date is preceding business day and if proceeding day also a public holiday, the due date will be preceding the previous day. For example, the due date of a bill is August 15, which is a public holiday; the preceding day is August 14.

Test: Bills Of Exchange And Promissory - 1 - Question 9

A draws a bill of Rs. 50,000 and B accepts it. After this, B becomes insolvent and only 40 paisa in a rupee could be recovered. What is the amount that can be recovered?

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 9

To calculate the amount that can be recovered, we need to consider the percentage of the bill that can be recovered and multiply it by the original bill amount.
Given:
Bill amount = Rs. 50,000
Percentage recovered = 40% (40 paisa in a rupee)
To calculate the amount that can be recovered, we can use the following formula:
Amount recovered = (Percentage recovered / 100) * Bill amount
Substituting the given values into the formula, we get:
Amount recovered = (40 / 100) * 50,000
= (0.4) * 50,000
= Rs. 20,000
Therefore, the amount that can be recovered is Rs. 20,000.
Hence, the correct answer is option A: Rs. 20,000.
Test: Bills Of Exchange And Promissory - 1 - Question 10

The Noting changes levied on dishonour of an endorsed bill by the Notary Public are to be born by:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 10
Explanation:
The changes levied on dishonour of an endorsed bill by the Notary Public are to be borne by the person responsible for the dishonour. Here is a detailed explanation:
Key Points:
- The dishonour of an endorsed bill refers to the refusal or failure to accept or pay the bill when it is presented for payment.
- The Notary Public is responsible for noting the dishonour of the bill and recording it in their register.
- The changes levied on dishonour refer to any fees or expenses incurred by the Notary Public for their services in noting the dishonour.
- The person responsible for the dishonour is the party who failed to accept or pay the bill. This could be the drawer of the bill or any subsequent endorser.
- The holder of the bill, who is the party presenting the bill for payment, is not responsible for bearing the changes levied by the Notary Public.
Therefore, the correct answer is: D: Person responsible for dishonour
Test: Bills Of Exchange And Promissory - 1 - Question 11

On 1stApril, A sold goods worth Rs. 10,000 to B. B drew a bill for 3 months. A discounted the bill from the bank at 15% p.a. then the amount received on account of bill will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 11

Let's calculate the amount received on account of the bill:

Step 1: Calculate the discount amount

• Discount rate = 15% p.a.

• Time period = 3 months = 3/12 years

• Simple interest = Principal * Rate * Time

• Discount = Simple interest on Rs. 10,000 for 3/12 years at 15% p.a.

• Discount = (10000 * 15 * 3/12) / 100 = Rs. 375

Step 2: Calculate the amount received

• Amount received = Principal - Discount

• Amount received = Rs. 10,000 - Rs. 375 = Rs. 9,625

Therefore, the amount received on account of the bill will be Rs. 9,625. So, option B is the correct answer.
Test: Bills Of Exchange And Promissory - 1 - Question 12

On 1.1.2005 X draws a bill on Y for Rs. 30,000 for 3 months. At maturity Y requests X to accept Rs. 10,000 in cash and for balance to draw a fresh bill for 2 months together with 12% p.a. interest, amount of interest will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 12

To find the amount of interest, we need to calculate the interest on the first bill of Rs. 30,000 for 3 months and the interest on the second bill of the remaining amount for 2 months.
First Bill:
Principal (P) = Rs. 30,000
Time (T) = 3 months
Rate of interest (R) = ?
Simple Interest (I) = ?
Using the formula for simple interest: I = P * R * T / 100
30,000 = 30,000 * R * 3 / 100
R = 10%
Second Bill:
Principal (P) = Rs. 20,000 (Remaining amount after deducting Rs. 10,000 from the first bill)
Time (T) = 2 months
Rate of interest (R) = 12% p.a. = 1% per month
Simple Interest (I) = ?
Using the formula for simple interest: I = P * R * T / 100
I = 20,000 * 1 * 2 / 100
I = Rs. 400
Therefore, the amount of interest will be Rs. 400.
Test: Bills Of Exchange And Promissory - 1 - Question 13

Bill receivable endorsed are debited to:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 13
Explanation:
When a bill receivable is endorsed, it means that the holder of the bill transfers the right of receiving the money from the bill to another party. This endorsement can be done in favor of a creditor who is owed money by the holder of the bill.
In this scenario, the bill receivable is being transferred to a creditor. Therefore, the accounting entry for the endorsement of a bill receivable would be:
Creditors A/c (because the creditor is being given the right to receive the money from the bill)
- This account is credited because the creditor is gaining an asset (the right to receive money)
Bills receivable A/c (because the bill receivable is being transferred)
- This account is debited because the bill receivable is being reduced or transferred to the creditor
The correct answer is B: Creditors A/c.
Test: Bills Of Exchange And Promissory - 1 - Question 14

A draws a bill on B for Rs. 50,000 for 3 months. At maturity, the bill returned dishonoured noting charges Rs. 500. 40 paise in a rupee is recovered from B’s estate. The amount of deficiency to recoded on insolvency in books of B will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 14

Correct option is B. Rs. 30,300
Bill amount = 50000
(+) Noting charges = 500
Bill amount = 50500
Recovered from B's estate = 50500*0.40 = 20200
Amount of deficiency to be recorded on insolvency = 50500 - 20200 = 30300
Hence b is the correct answer.

Test: Bills Of Exchange And Promissory - 1 - Question 15

How long is the period of days of grace in cash of a bill:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 15
Explanation:
The period of days of grace in cash of a bill refers to the extra time given to the debtor to make payment after the due date without incurring penalties or defaulting on the bill. In this case, the correct answer is option A: Three days.
Here is a detailed explanation:
Days of Grace:
- Days of grace is a provision in many bills of exchange or promissory notes that allows the debtor an additional period of time to make payment without incurring any penalties or consequences.
- It is a period of time beyond the due date during which the debtor can still make payment and fulfill their obligation.
Length of the Period:
- The length of the days of grace period can vary depending on the terms and conditions of the bill or promissory note.
- In this case, the period of days of grace is specified as three days.
Implications:
- If the debtor makes payment within the three-day grace period, they will not be considered in default and will not face any penalties.
- However, if the debtor fails to make payment within the grace period, they will be in default and may face consequences such as late payment fees or legal action.
Conclusion:
- The period of days of grace in cash of a bill is three days, as stated in option A.
Test: Bills Of Exchange And Promissory - 1 - Question 16

A bill of 12,000 was discounted by A with the banker for 11,880. At maturity, the bill returned dishonoured, noting charges Rs.20. How much amount will the bank deduct from A’s bank balance at the time of such dishonour?

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 16

To find out the amount deducted from A's bank balance at the time of dishonour, we need to consider the following:
1. The bill was discounted by A with the banker for Rs. 11,880.
2. The bill returned dishonoured, noting charges of Rs. 20.
Now let's calculate the amount deducted from A's bank balance:
- The bill was discounted for Rs. 11,880, which means A received Rs. 11,880 from the banker.
- However, the bill returned dishonoured, so A needs to pay back the discounted amount to the banker.
- Additionally, A also needs to pay the noting charges of Rs. 20.
Therefore, the total amount deducted from A's bank balance at the time of dishonour is:
Discounted amount + Noting charges = Rs. 11,880 + Rs. 20 = Rs. 11,900.
So, option C, Rs. 11,900, is the correct answer.

Test: Bills Of Exchange And Promissory - 1 - Question 17

“Bills payable discounted in cash by Creditor” will be shown in

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 17
Explanation:
When bills payable are discounted in cash by a creditor, it means that the creditor is providing a cash advance against the bills payable. In this scenario, the entry to record the transaction is as follows:
Journal Entry:
- Debit: Cash (to record the amount received from the creditor)
- Credit: Bills Payable (to reduce the liability)
The journal entry is the initial recording of the transaction and is not shown in any specific book or ledger. However, the effects of this transaction will be reflected in the respective accounts in the ledger.
Therefore, the correct answer is No entry required (Option D).
Test: Bills Of Exchange And Promissory - 1 - Question 18

A’ draws a bill on ‘B’, but ‘B’ did not accept the same. Which of the following journal entry should be passed in the books of ‘A’.

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 18

Journal Entry in the books of 'A' when 'B' does not accept the bill drawn by 'A':

When 'A' draws a bill on 'B', but 'B' does not accept the same, no entry will be required or passed in the books of 'A'.

Reason:

When a bill is drawn on someone, it implies that the person on whom the bill is drawn is liable to accept and pay the bill on its maturity. However, if 'B' does not accept the bill drawn by 'A', it means that 'B' is not liable for the payment of the bill.

As a result, 'A' cannot record any entry related to the bill in its books because the bill has not been accepted by 'B' and has no value as an asset for 'A'.

Therefore, the correct answer is No entry will be required/Passed (Option D).

Test: Bills Of Exchange And Promissory - 1 - Question 19

When full amount is due on any call but it is not received, then the shortfall is debited to -

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 19

When a shareholder fails to pay any amount due on the calls on the due date, this amount is transferred to calls in arrear account.

Test: Bills Of Exchange And Promissory - 1 - Question 20

On 1.8.05 X draw a bill on Y “ for 30 days after sight”. The date of acceptance is 8.8.05. The maturity date of the bill will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 20

To determine the maturity date of the bill, we need to consider the terms stated on the bill and calculate the number of days after the acceptance date.
Given information:
- The bill is drawn on 1.8.05.
- The bill states "for 30 days after sight".
- The date of acceptance is 8.8.05.
To calculate the maturity date, we follow these steps:
1. Calculate the number of days between the draw date and the acceptance date:
- Draw date: 1.8.05
- Acceptance date: 8.8.05
- Number of days: 8
2. Add the number of days stated on the bill to the acceptance date:
- Number of days after sight: 30
- Acceptance date + Number of days after sight: 8.8.05 + 30 days = 7.9.05
3. Adjust the date to the next business day if the maturity date falls on a non-business day:
- The maturity date of 7.9.05 falls on a Sunday (non-business day).
- The next business day after Sunday is Monday.
- Therefore, the maturity date is 10.9.05.
Therefore, the correct answer is B: 10.9.05.
Test: Bills Of Exchange And Promissory - 1 - Question 21

On 1.1.05 X draws a bill Y for Rs. 10,000. At maturity Y request X to renew the bill for 2 months at 12% p.a. interest. Amount of interest will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 21
Calculation of Interest:
To calculate the interest, we need to consider the following factors:
1. Principal Amount: Rs. 10,000
2. Rate of Interest: 12% per annum
3. Time Period: 2 months
Step 1: Calculate the interest for 2 months:
Since the time period is given in months, we need to convert the annual interest rate to a monthly rate.
Monthly Interest Rate = Annual Interest Rate / 12
= 12% / 12
= 1%
Step 2: Calculate the interest for 2 months:
Interest = (Principal Amount * Rate of Interest * Time Period) / 100
= (10,000 * 1 * 2) / 100
= 200
Therefore, the amount of interest will be Rs. 200. Hence, option A is the correct answer.
Test: Bills Of Exchange And Promissory - 1 - Question 22

X sold goods to Y for Rs. 1,00,000. Y paid cash Rs. 30,000. X will grant 2% discount on balance, and Y request X to draw a bill for balance, the amount of bill will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 22
Given Information:
- X sold goods to Y for Rs. 1,00,000.
- Y paid cash Rs. 30,000.
- X will grant 2% discount on the balance.
- Y requests X to draw a bill for the balance amount.
To find:
The amount of the bill that X will draw for the balance.

1. The total amount of goods sold by X is Rs. 1,00,000.
2. Y has paid cash of Rs. 30,000, so the balance amount is Rs. 1,00,000 - Rs. 30,000 = Rs. 70,000.
3. X will grant a 2% discount on the balance amount.
4. The discount amount can be calculated as 2% of Rs. 70,000, which is (2/100) * Rs. 70,000 = Rs. 1,400.
5. The bill amount will be the balance amount minus the discount amount.
6. Therefore, the bill amount will be Rs. 70,000 - Rs. 1,400 = Rs. 68,600.
The amount of the bill that X will draw for the balance is Rs. 68,600. (Option C)
Test: Bills Of Exchange And Promissory - 1 - Question 23

Kumar draws a bill on Rajat for Rs. 50,000 for mutual accommodation in the ratio of 3:2. Rajat accepted the bill. Kumar got it discounted for Rs. 47,500. How much money should Kumar remit to Rajat?

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 23

The given information is as follows:
- Kumar draws a bill on Rajat for Rs. 50,000 for mutual accommodation in the ratio of 3:2.
- Rajat accepted the bill.
- Kumar got it discounted for Rs. 47,500.
To find the amount of money Kumar should remit to Rajat, we need to calculate the share of each person in the bill.
Let's calculate the shares:
- The total ratio is 3:2, which means Kumar's share is 3/5 of the total and Rajat's share is 2/5 of the total.
- Kumar's share = (3/5) * Rs. 50,000 = Rs. 30,000
- Rajat's share = (2/5) * Rs. 50,000 = Rs. 20,000
Since Kumar got the bill discounted for Rs. 47,500, he needs to remit the remaining amount to Rajat.
Therefore, the money Kumar should remit to Rajat is:
- Rs. 47,500 - Rs. 30,000 = Rs. 17,500
Hence, the correct answer is option B: Rs. 17,500.
Test: Bills Of Exchange And Promissory - 1 - Question 24

If a machine is purchased for Rs. 5,00,000 on 1st April, 2002 on hire-purchase basis. What is the average due date, if amount is repaid in 5 yearly annual instalments starting from 1thApril, 2003

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 24

Average in the sense 1.4.03-1.4.07
and 1.4.05 is the average of that.

If u give 1.4.03 as and so on 1.4.07

as (1+2+3+4+5)/5 = 3

and 3 years is 1.4.05

Test: Bills Of Exchange And Promissory - 1 - Question 25

On 15.8.05 X draws a bill on Y for 3 months for Rs. 20,000. 18th Nov was a sudden holiday, maturity date of the bill will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 25

Let's break down the information given:

• X draws a bill on Y for 3 months.

• The bill is worth Rs. 20,000.

• The date of drawing the bill is 15.8.05.

• 18th Nov was a sudden holiday.

To calculate the maturity date of the bill, we need to add 3 months to the date of drawing the bill, excluding the holiday.

Steps to calculate the maturity date:

1. Convert the given date into a standardized format (dd/mm/yy).

2. Add 3 months to the drawing date, excluding the holiday.

3. Determine the day of the week for the calculated maturity date.

4. Convert the maturity date back into the given date format (dd.mm.yy).

Step 1: Convert the given date into a standardized format (dd/mm/yy).

The given date is 15.8.05, which can be written as 15/08/2005.

Step 2: Add 3 months to the drawing date, excluding the holiday.

Since 18th Nov was a sudden holiday, it will not be counted in the calculation. So, we need to find the date that is 3 months after 15/08/2005, excluding 18/11/2005.

To calculate the maturity date, we need to consider the number of days in each month:

• August has 31 days.

• September has 30 days.

• October has 31 days.

So, excluding 18/11/2005, the maturity date will be 15/11/2005.

Step 3: Determine the day of the week for the calculated maturity date.

Using a calendar or a calculator, we can determine that 15/11/2005 was a Tuesday.

Step 4: Convert the maturity date back into the given date format (dd.mm.yy).

15/11/2005 can be written as 15.11.05.

Therefore, the maturity date of the bill will be 15.11.05, which corresponds to option C.

Test: Bills Of Exchange And Promissory - 1 - Question 26

In case of sudden holiday, maturity date falls on :

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 26
Explanation:
When a sudden holiday occurs, it may affect the maturity date of certain events or transactions. In this case, we are discussing the maturity date.
The maturity date is the date on which a financial instrument or contract expires and must be settled. It is the date when the final payment or delivery is due. However, if a holiday falls on the maturity date, it may impact the settlement process.
Now let's analyze the given options and determine the correct answer:
A: Next following day
- If a sudden holiday occurs, and the maturity date falls on that day, the settlement will be postponed to the next following day after the holiday.
B: Previous day
- If a sudden holiday occurs, and the maturity date falls on that day, the settlement will not be moved to the previous day. The settlement will be postponed to the next following day after the holiday.
C: On the same day
- If a sudden holiday occurs, and the maturity date falls on that day, the settlement will not happen on the same day. It will be postponed to the next following day after the holiday.
D: None of the above
- Since the correct answer is option A, none of the other options applies.
Therefore, in case of a sudden holiday, if the maturity date falls on that day, the settlement will be postponed to the next following day after the holiday.
Test: Bills Of Exchange And Promissory - 1 - Question 27

“Liability on account of bills discounted with Bank” will be treated as:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 27
Liability on account of bills discounted with Bank
Definition:
The liability on account of bills discounted with a bank refers to the amount of money that a bank owes to the entity that has discounted its bills with the bank. It represents the amount that the bank is liable to pay back to the entity when the bills mature.
Treatment:
The correct treatment of liability on account of bills discounted with a bank is as follows:
1. Contingent liability: The liability on account of bills discounted with a bank is considered a contingent liability. This is because the bank's liability to pay back the discounted amount depends on certain conditions being met, such as the bills being honored by the parties involved.
2. Recognition: The liability on account of bills discounted with a bank should be recognized in the financial statements of the entity as a contingent liability. It should be disclosed in the notes to the financial statements.
3. Disclosure: The entity should disclose the nature and amount of the contingent liability on account of bills discounted with a bank in the notes to the financial statements. This helps users of the financial statements to understand the potential financial obligations of the entity.
4. Impact on financial position: The liability on account of bills discounted with a bank does not have an immediate impact on the entity's financial position. It becomes a liability only when the bills are due and payable by the bank. Until then, it remains a contingent liability.
In conclusion, the liability on account of bills discounted with a bank is treated as a contingent liability. It represents the bank's potential obligation to pay back the discounted amount when the bills mature. This liability should be recognized and disclosed in the entity's financial statements.
Test: Bills Of Exchange And Promissory - 1 - Question 28

Which of the following statements is not true?

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 28
The correct answer is A: Noting charges are expenses of drawer.
Explanation:
Noting charges are expenses of drawer:
- Noting charges are expenses incurred when a bill of exchange is presented for acceptance or payment and is not accepted or paid.
- These charges are usually borne by the party who presented the bill, which is the holder or the payee, not the drawer.
- Therefore, it is not true to say that noting charges are expenses of the drawer.
The other statements are true:
- The bill of exchange must contain an order to pay: A bill of exchange is a written order from the drawer to the drawee, instructing the drawee to pay a certain amount of money to the payee.
- The drawer and payee can be the same person: In some cases, the drawer and the payee can be the same person. For example, a business owner may issue a bill of exchange to themselves as a way to transfer funds between their personal and business accounts.
- A bill of exchange can be endorsed (i.e. passed on to another person): An endorsement is a signature on the back of a bill of exchange, indicating the transfer of rights to another person. This allows the bill to be passed on to another party, who becomes the new holder and can present it for payment.
In conclusion, the statement that is not true is that noting charges are expenses of the drawer (option A).
Test: Bills Of Exchange And Promissory - 1 - Question 29

Mr. A draws a bill on Mr. Y for Rs. 30,000 on 1.1.06 for 3 months. on 4.2.06. X got the bill discounted at 12% rate. The amount of discount will be:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 29

Given:
- Mr. A draws a bill on Mr. Y for Rs. 30,000 on 1.1.06 for 3 months.
- X got the bill discounted on 4.2.06 at a rate of 12%.
To find:
The amount of discount on the bill.
Step 1: Calculate the time period for which the bill is discounted.
- The bill was drawn on 1.1.06, and the discount was availed on 4.2.06.
- The time period between these two dates is 34 days.
Step 2: Convert the time period to months.
- As the bill is for 3 months, we need to express the time period in terms of months.
- 34 days = (34/30) months (approximating to the nearest whole number) = 1 month.
Step 3: Calculate the discount amount.
- The discount rate is 12%.
- Formula to calculate the discount amount is: Discount = (Bill amount * Rate * Time)/100.
- Substituting the values, we get: Discount = (30,000 * 12 * 1)/100 = Rs. 3,600.
Therefore, the amount of discount on the bill is Rs. 3,600.
Test: Bills Of Exchange And Promissory - 1 - Question 30

X draws a bill on Y for Rs. 30,000 on 1.1.05. X accepts the same on 4.1.05. Period of the bill 3 months after date. What will be the due date of the bill:

Detailed Solution for Test: Bills Of Exchange And Promissory - 1 - Question 30