Nominal due date = March 05 + 30 days = April 04.

Maturity Date = April 04 + 3 Days of Grace = April 07.

Nominal due date = March 05 + 1 month = April 05.

Maturity Date = April 05 + 3 Days of Grace = April 08.

In the Books of Anjali (Drawer)

(a) On drawing and receiving the accepted bill:

(b) On receiving payment on the maturity date (July 04):

In the Books of Anjali (Drawer)

(a) On drawing and receiving the accepted bill: (Entry is the same as in Option 1).

(b) On discounting the bill with the bank:

(c) On maturity date (July 04): No entry is passed in Anjali's books. The transaction is now between the bank and Babita.

In the Books of Anjali (Drawer)

(a) On drawing and receiving the accepted bill: (Entry is the same as in Option 1).

(b) On endorsing the bill to Chanda:

(c) On maturity date (July 04): No entry is passed in Anjali's books. Chanda will now collect the money directly from Babita.

In the Books of Anjali (Drawer)

(a) On drawing and receiving the accepted bill: (Entry is the same as in Option 1).

(b) On sending the bill to the bank for collection:

(c) On receiving confirmation from the bank that the bill has been collected:

In the Books of Babita (Drawee)

(a) On accepting the bill drawn by Anjali:

(b) On making the payment on maturity:

Note: These two entries in Babita's books remain exactly the same regardless of whether Anjali retains, discounts, endorses, or sends the bill for collection. Babita's obligation is to pay the holder of the bill on the due date.

Books of Shieba (Drawer)

(Initial entries for drawing, discounting, and endorsing the bill are shown for context)

Case (i): When the bill was retained and dishonoured (Noting charges paid by Shieba)

Case (ii): When the bill was discounted and dishonoured (Noting charges paid by Bank)

Case (iii): When the bill was endorsed and dishonoured (Noting charges paid by Lal Chand)

Books of Vishal (Drawee)

(The entry for dishonour will be the same in all three cases because Vishal's liability is always to Shieba, and the noting charges are his expense).

Working Notes:

1. Calculation of Due Date

• Date of Drawing: April 01, 2023
• Tenure of Bill: 3 Months
• Nominal Due Date: April 01 + 3 Months = July 01, 2023
• Days of Grace: 3 Days
• Legal Due Date: July 04, 2023

2. Initial Journal Entries (Common to all cases)

The entries for the sale of goods and the acceptance of the bill are the same regardless of what Amit does with the bill later.

In the Books of Amit (Drawer)

In the Books of Bimal (Drawee)

Journal Entries on Dishonour (July 04, 2023)

In the Books of Amit (Drawer)

Case (i): If the bill was retained by Amit.

Amit pays the noting charges himself. He will recover the bill amount plus the noting charges from Bimal.

Case (ii): If the bill was discounted with the bank.

The bank pays the noting charges and recovers the total amount (Bill + Charges) from Amit's account.

Case (iii): If the bill was endorsed to Charan.

Charan pays the noting charges. Amit's liability to Charan is restored for the full amount.

Case (iv): If the bill was sent to the bank for collection.

The bank, as an agent, pays the noting charges on Amit's behalf. Amit recovers the total amount from Bimal.

In the Books of Bimal (Drawee)

The entry for dishonour in Bimal's books is identical in all four cases. He cancels his Bills Payable, recognizes the Noting Charges as an expense, and re-establishes his full liability to the original drawer, Amit.

Journal Entries in the Books of Ravi (Drawer)

Journal Entries in the Books of Mohan (Drawee)

Working Notes: Calculation of Rebate

• Original Due Date: March 15 + 4 months + 3 days = July 18, 2023.
• Date of Retirement: June 18, 2023.
• Unexpired Period: From June 18 to July 18 = 1 month.
• Rebate Amount = $Bill \ Amount \times Rate \times Time$
• Rebate = $\text{₹} \ 40,000 \times \frac{12}{100} \times \frac{1}{12} = \text{₹} \ 400$.
• Amount Paid by Y = $\text{₹} \ 40,000 - \text{₹} \ 400 = \text{₹} \ 39,600$.

Journal Entries in the Books of X (Drawer)

Journal Entries in the Books of Y (Drawee)

(i) False.

Reason: A bill of exchange must be accepted by the drawee (the person who is ordered to pay), not the payee (the person who is to receive the payment). Acceptance by the drawee signifies their agreement to honour the bill on the due date.

(ii) True.

Reason: A bill of exchange is an instrument of credit. It is drawn by the seller of goods (the creditor) on the buyer of goods (the debtor) to ensure payment on a future date.

(iii) False.

Reason: A bill of exchange is used for credit transactions to provide a legal instrument for a future payment. In a cash transaction, payment is made immediately, so there is no need for a bill of exchange.

(iv) False.

Reason: A bill payable on demand is called a Demand Bill or a Sight Bill. A 'Time Bill' or 'Usance Bill' is one that is payable after a specific period.

(v) True.

Reason: This is the correct definition. The payee is the person named in the instrument to whom the payment is to be made. The drawer and the payee can be the same person.

(vi) False.

Reason: The signature of the maker (in a promissory note) or the drawer (in a bill of exchange) is an essential characteristic of a negotiable instrument. An unsigned instrument is invalid.

(vii) True.

Reason: In the traditional Indian system, a 'Hundi' payable at sight or on presentation is known as a 'Darshani Hundi' (from the word 'darshan', meaning sight).

(viii) False.

Reason: The core characteristic of a negotiable instrument is its free transferability. It can be transferred from one person to another by endorsement and delivery, and the transferee (holder in due course) gets a good title to it.

(ix) False.

Reason: As per the Indian Stamp Act, 1899, a promissory note (and a bill of exchange) must be duly stamped to be considered a legally valid and enforceable instrument. An unstamped note is inadmissible as evidence in court.

(x) False.

Reason: A key feature of a negotiable instrument is that the time of payment must be certain. It must be payable either on demand or at a fixed or determinable future date. An instrument payable on a contingent event is not a valid negotiable instrument.

(i) A bill of exchange is a negotiable instrument.

Explanation: It is called a negotiable instrument because its ownership can be freely transferred from one person to another by endorsement and delivery.

(ii) A bill of exchange is drawn by the creditor upon his debtor.

Explanation: The seller (creditor) draws the bill, ordering the buyer (debtor) to pay the specified amount on a future date.

(iii) A promissory note is drawn by the debtor in favour of his creditor.

Explanation: A promissory note is a promise to pay. The buyer (debtor) makes the note, promising to pay the seller (creditor).

(iv) There are three parties to a bill of exchange.

Explanation: The three parties are the Drawer (who makes the bill), the Drawee (who is ordered to pay), and the Payee (who is to receive the payment). The Drawer and Payee can be the same person.

(v) There are two parties to a promissory note.

Explanation: The two parties are the Maker (the person who promises to pay) and the Payee (the person to whom the payment is promised).

(vi) Drawer and drawee can not be the same parties in case of a bill of exchange.

Explanation: The drawer is the person giving the order, and the drawee is the person receiving the order to pay. One cannot order oneself to pay in a standard bill of exchange.

(vii) Bill of exchange in India languages is called Hundi.

Explanation: Hundi is the traditional financial instrument that was used in the Indian subcontinent for trade and credit purposes, and it functions similarly to a bill of exchange.

(viii) Three days of grace are added in terms of the bill to calculate the date of its maturity.

Explanation: As per the Negotiable Instruments Act, 1881, three extra days (days of grace) are added to the nominal due date of a time bill to arrive at the legal due date, which is the date of maturity. This does not apply to bills payable on demand.

Two of the most commonly used negotiable instruments as per the Negotiable Instruments Act, 1881, are:

1. Bill of Exchange
2. Promissory Note

(Another common example is a Cheque).

Four essential features of a bill of exchange are:

1. It must be in writing: A bill of exchange cannot be oral; it must be a written document.
2. It contains an unconditional order: The drawer's instruction to the drawee to pay must be an order, not a request, and it must be without any conditions.
3. It must be signed by the drawer: The person who makes the bill (the drawer) must sign it.
4. The amount must be certain: The amount payable must be a specific and definite sum of money.

The three parties involved in a bill of exchange are:

1. Drawer: The person who makes or draws the bill and signs it. He is the creditor who is entitled to receive the money.
2. Drawee (or Acceptor): The person on whom the bill is drawn and who is ordered to pay the amount. He is the debtor.
3. Payee: The person to whom the payment is to be made. The drawer can also be the payee.

Maturity of a bill of exchange refers to the date on which the bill becomes legally due for payment. For a time bill, the date of maturity is calculated by adding three days of grace to the nominal due date. For example, if a bill is drawn on January 1st for 1 month, its nominal due date is February 1st, and its date of maturity (after adding 3 days of grace) is February 4th. A bill payable on demand matures on the date it is presented for payment.

Dishonour of a bill of exchange occurs when the drawee (acceptor) fails or refuses to make the payment of the bill on its maturity date. A bill can also be dishonoured by non-acceptance if the drawee refuses to accept it when it is presented for acceptance. When a bill is dishonoured, the holder of the bill can take legal action against the drawer and all prior endorsers to recover the amount.

There are two parties to a promissory note:

1. Maker (or Drawer): The person who makes the promise to pay a certain sum of money. He is the debtor.
2. Payee: The person to whom the payment is promised to be made. He is the creditor.

Acceptance of a bill of exchange is the act by which the drawee gives their assent to the order of the drawer. The drawee signifies their acceptance by signing their name across the face of the bill, usually with the word "Accepted" and the date. Once the drawee accepts the bill, they become the 'acceptor' and are legally liable to pay the amount of the bill on the due date.

Noting of a bill of exchange is the act of recording the fact of its dishonour by a Notary Public. When a bill is dishonoured, the holder can take it to a Notary Public, who officially presents it again for payment. If payment is still refused, the Notary records the fact of dishonour, the date, and the reasons on the bill itself or in a register. The fee charged by the Notary for this service is called 'noting charges'. Noting serves as authentic, legal evidence of dishonour.

Renewal of a bill of exchange is a process where, at the request of the drawee, the old bill is cancelled before its maturity, and a new bill is drawn for an extended period. This usually happens when the drawee is unable to pay the bill on the due date. The old bill is cancelled, and a new bill is drawn, often for a larger amount which includes interest for the extended credit period.

Bills Receivable Book

Bills Payable Book

Retirement of a bill of exchange refers to the situation where the drawee (acceptor) makes the payment of the bill to the holder before its maturity date. The holder usually allows a discount, known as a 'rebate', to the drawee as an incentive for this early payment. The rebate is calculated on the amount of the bill for the period between the date of payment and the date of maturity.

Rebate is a discount or a concession in value given by the holder of a bill of exchange to the acceptor for making the payment of the bill before its due date. It is an income for the acceptor (drawee) and an expense for the holder who receives the early payment. The rebate is calculated at a certain rate of interest for the unexpired period of the bill.

Specimen of a Bill of Exchange

No, I do not agree with the statement.

The statement is incorrect because it confuses the fundamental nature of a bill of exchange with that of a promissory note.

• A Bill of Exchange, as defined by the Negotiable Instruments Act, 1881, is 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 key phrase here is "unconditional order". It is an instruction from a creditor (drawer) to a debtor (drawee) to pay. It is a command, not a promise.


• A Promissory Note, on the other hand, is an instrument in writing containing an unconditional promise, signed by the maker, 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 key phrase here is "unconditional promise". It is an undertaking given by a debtor (maker) to a creditor (payee).

Therefore, the statement "A bill of exchange must contain an unconditional promise to pay" is fundamentally wrong. It is a promissory note that contains an unconditional promise, while a bill of exchange contains an unconditional order.

The effects of dishonour and noting of a bill of exchange are significant both legally and for accounting purposes.

Effects of Dishonour

Dishonour occurs when the acceptor of the bill fails to make payment on the maturity date.

1. Reversal of Liability: The primary effect is that the acceptor has defaulted on their legal obligation. Consequently, the liability for payment reverts to the drawer and any endorsers who transferred the bill. The holder of the bill can now claim the amount from any of these parties.
2. Right of Legal Action: The holder of the dishonoured bill gains the right to sue the acceptor, the drawer, and all prior endorsers to recover the amount of the bill.
3. Accounting Impact: In the books of accounts, the entry for the acceptance of the bill is reversed. The acceptor, who was no longer a debtor after accepting the bill, is once again debited and becomes a debtor to the holder of the bill. The Bills Receivable account is credited to cancel the bill.

Effects of Noting

Noting is the official recording of the fact of dishonour by a Notary Public.

1. Creation of Legal Evidence: Noting serves as authentic and legally admissible evidence that the bill was duly presented for payment and was dishonoured. This is crucial if the holder decides to take legal action.
2. Incurring Noting Charges: The Notary Public charges a fee for this service, known as 'noting charges'. These charges are initially paid by the holder of the bill.
3. Recovery of Charges: The holder has the right to recover the noting charges from the party responsible for the dishonour. Ultimately, the acceptor (drawee) is liable for both the bill amount and the noting charges. In accounting, the noting charges are added to the amount receivable from the drawee.

The date of maturity is the date on which a bill of exchange becomes legally due for payment. The procedure for calculating it depends on the term of the bill and involves a few key steps as per the Negotiable Instruments Act, 1881.

Procedure for Calculation:

Step 1: Determine the Nominal Due Date

• If the term is in Months: The bill falls due on the corresponding day of the month after the specified number of months. For example, a 2-month bill drawn on March 15 will be nominally due on May 15.
• If the term is in Days: The exact number of days in the term are counted from the date following the date of drawing. For example, for a 30-day bill drawn on July 1, we count 30 days starting from July 2.

Step 2: Add Days of Grace

For all time bills (bills payable after a certain period), three days of grace are added to the nominal due date. The date arrived at is the legal date of maturity. This does not apply to bills payable on demand or at sight.

Step 3: Consider Public Holidays

• If the calculated maturity date (after adding days of grace) falls on a Public Holiday (e.g., Sunday, January 26, August 15), the bill is due for payment on the immediately preceding business day.
• If the maturity date falls on a day that is declared an Emergency Holiday (e.g., due to a bandh or death of a national leader), the bill is due for payment on the immediately next business day.

Examples:

Example 1 (Term in Months): A bill is drawn on August 14, 2023, for 3 months.

• Nominal Due Date: November 14, 2023
• Add 3 Days of Grace: November 17, 2023
• Date of Maturity: November 17, 2023 (assuming it is a working day).

Example 2 (Term in Days with Holiday): A bill is drawn on January 23, 2024, for 30 days.

• Counting 30 days from Jan 24: (Jan: 8 days + Feb: 22 days) = Feb 22, 2024
• Nominal Due Date: February 22, 2024
• Add 3 Days of Grace: February 25, 2024
• Since February 25, 2024, is a Sunday (Public Holiday), the maturity date is the preceding business day.
• Date of Maturity: February 24, 2024 (Saturday).

Retirement of a bill refers to the act of settling a bill of exchange by making payment before its legal due date. This is done with the mutual consent of the holder and the acceptor.

The purpose is to settle a liability early when the debtor has surplus funds and to provide the creditor with early access to cash.

Benefits to the Debtor (Acceptor/Drawee)

1. Earning Rebate: The primary benefit is that the acceptor receives a discount, known as a 'rebate', from the creditor. This rebate is an incentive for the early payment and is calculated for the unexpired period of the bill, effectively reducing the total payment amount.
2. Enhanced Reputation: Making payments before the due date improves the business's creditworthiness and reputation in the market, which can be beneficial for future transactions.
3. Discharge of Liability: It allows the debtor to discharge a liability as soon as they have available funds, relieving them of the need to manage finances for a future payment date.

Benefits to the Creditor (Holder)

1. Improved Liquidity: The most significant benefit is the early receipt of cash. This improves the creditor's cash flow and working capital position, allowing them to use the funds for other business needs immediately.
2. Elimination of Risk: By receiving payment early, the creditor eliminates the risk of the bill being dishonoured on the maturity date.
3. Savings on Discounting Charges: If the creditor was in urgent need of funds, they might have had to discount the bill with a bank and pay discounting charges. Retirement of the bill avoids this process and the associated costs (though a rebate is given instead).

A Bills Receivable Book is a subsidiary journal used to maintain a detailed record of all bills of exchange and promissory notes received by a business from its debtors.

Purpose

The main purpose is to systematically record all incoming negotiable instruments in one place. Instead of passing a separate journal entry for each bill received, which would be cumbersome in a business with many such transactions, a single-line entry is made in this specialized book.

Advantages

1. Centralized Information: It provides a complete and organized record of all bills receivable in one location, showing details like the date of receipt, acceptor's name, term, due date, and amount.
2. Efficient Management and Control: It helps in keeping a close watch on the maturity dates of various bills. This ensures that the bills are presented for payment on their respective due dates, preventing any oversight.
3. Time and Labour Saving: It simplifies the recording process and saves the time and effort of journalizing each transaction individually.
4. Simplified Ledger Posting: The total of the Bills Receivable Book is posted periodically (e.g., monthly) as a single debit to the 'Bills Receivable Account' in the general ledger. This drastically reduces the number of postings required.
5. Easy Information Retrieval: It becomes very easy to find details about any specific bill received by the business.

A Bills Payable Book is a subsidiary journal used to maintain a detailed record of all bills of exchange accepted and all promissory notes issued by the business in favour of its creditors.

Benefits

1. Systematic Record of Liabilities: It provides a complete and chronological record of all liabilities arising from the acceptance of bills or issue of promissory notes.
2. Effective Liability Management: It helps the business keep track of the maturity dates of all its bills payable. This is crucial for arranging funds in time to honour the bills and maintain the firm's creditworthiness.
3. Saves Clerical Work: Like other subsidiary books, it saves significant time and labour by avoiding the need to pass a separate journal entry for each bill accepted.
4. Easy Verification: The book facilitates easy verification and cross-checking of the total liability under 'Bills Payable' at any given time.

Posting Procedure from the Bills Payable Book

The posting from the Bills Payable Book is a two-fold process:

1. Individual Posting: Each transaction recorded in the Bills Payable Book is individually and immediately posted to the debit side of the respective creditor's (the person who drew the bill) personal account in the ledger. The narration is "By Bills Payable A/c". This entry settles the creditor's account.
2. Periodic Posting: At the end of the accounting period (e.g., monthly), the 'Amount' column of the Bills Payable Book is totaled. This total amount is then posted as a single entry to the credit side of the 'Bills Payable Account' in the general ledger. The narration is "By Sundries as per Bills Payable Book".

In the Books of Rao (Drawer/Seller)

Journal Entries

Working Note: Calculation of Due Date

Date of Bill: January 01, 2016

Term of Bill: 30 days

Nominal Due Date: January 31, 2016 (Jan 01 + 30 days)

Days of Grace: 3 days

Legal Due Date: February 03, 2016 (Jan 31 + 3 days)

In the Books of Reddy (Drawee/Buyer)

Rao's Account

Dr.Cr.

As per the Negotiable Instruments Act, 1881, if the maturity date of an instrument falls on a public holiday, the instrument is deemed to be due on the preceding business day. The lawyer "duly presented" the bill, implying it was presented on the correct date.

Working Note: Calculation of Due Date

Date of Promissory Note: January 01, 2016

Term of Note: 3 months

Nominal Due Date: April 01, 2016 (Jan 01 + 3 months)

Days of Grace: 3 days

Calculated Due Date: April 04, 2016

Since April 04, 2016, is a public holiday, the Legal Due Date is the preceding day, i.e., April 03, 2016.

In the Books of Parvati (Payee/Seller)

Journal Entries

In the Books of Shankar (Maker/Buyer)

Journal Entries

Working Notes:

1. Calculation of Due Date:

Date of Bill: January 05, 2016

Term of Bill: 2 months

Nominal Due Date: March 05, 2016

Days of Grace: 3 days

Legal Due Date: March 08, 2016

2. Calculation of Discounting Charges:

The bill is discounted immediately for its entire tenure of 2 months.

$\text{Discount Charges} = \text{Bill Amount} \times \frac{\text{Rate}}{100} \times \frac{\text{Period}}{12}$

$\text{Discount Charges} = \textsf{₹ } \ 7,000 \times \frac{12}{100} \times \frac{2}{12} = \textsf{₹ } \ 140$

Amount received by Vishal = $\textsf{₹ } \ 7,000 - \textsf{₹ } \ 140 = \textsf{₹ } \ 6,860$

In the Books of Vishal (Drawer)

Journal Entries

Note: No entry will be made in Vishal's books on the due date (March 08) because the bill was discounted. Since Manju honoured the bill, Vishal's contingent liability ceases without any further entry.

In the Books of Manju (Drawee)

Journal Entries

Working Note: Calculation of Due Date

Date of Bill: February 01, 2016

Term of Bill: 40 days

Nominal Due Date: March 12, 2016 (28 days in Feb + 12 days in Mar)

Days of Grace: 3 days

Legal Due Date: March 15, 2016

In the Books of Jimmi (Seller)

John's Account

Dr.Cr.

In the Books of John (Buyer)

Jimmi's Account

Dr.Cr.

Working Notes:

1. Due Dates of Bills:

• Bill 1 (1 month): Jan 15 + 1 month + 3 days = Feb 18, 2015

• Bill 2 (2 months): Jan 15 + 2 months + 3 days = Mar 18, 2015

• Bill 3 (3 months): Jan 15 + 3 months + 3 days = Apr 18, 2015

2. Discounting Charges for 3rd Bill:

$\text{Discount} = \textsf{₹ } \ 10,000 \times \frac{6}{100} \times \frac{3}{12} = \textsf{₹ } \ 150$

In the Books of Kartar (Drawer/Seller)

Journal Entries

Ledger Accounts

Bhagwan's Account

Dr.Cr.

Bills Receivable Account

Dr.Cr.

In the Books of Bhagwan (Drawee/Buyer)

Journal Entries

Ledger Accounts

Kartar's Account

Dr.Cr.

Bills Payable Account

Dr.Cr.

Determination of the Date of Presentation

As per the provisions of the Negotiable Instruments Act, 1881, if the date of maturity of a bill of exchange or promissory note falls on a public holiday, the instrument is deemed to be due on the preceding business day.

Calculation of Due Date:

• Date of drawing the promissory note: January 01, 2016

• Term of the note: 20 days

• Nominal Due Date: January 21, 2016 (Jan 01 + 20 days)

• Add: Days of Grace: 3 days

• Calculated Maturity Date: January 24, 2016

Since January 24, 2016, was a public holiday, the bill was presented for payment on the preceding business day. Therefore, the date of presentation is January 23, 2016.

In the Books of Arun (Seller/Payee)

Working Note:

Total Sale = $\textsf{₹ } \ 30,000$

Immediate Payment (50%) = $\textsf{₹ } \ 15,000$

Cash Discount (2% on $\textsf{₹ } \ 15,000$) = $\textsf{₹ } \ 300$

Cash Received = $\textsf{₹ } \ 15,000 - \textsf{₹ } \ 300 = \textsf{₹ } \ 14,700$

Amount of Promissory Note (Balance 50%) = $\textsf{₹ } \ 15,000$

Journal Entries

In the Books of Sunil (Buyer/Maker)

Journal Entries

Working Notes:

1. Calculation of Due Date:

Date of Bill: January 08, 2016

Term of Bill: 2 months

Maturity Date: March 08, 2016

Add: Days of Grace: 3 days

Legal Due Date: March 11, 2016

2. Calculation of Discounting Charges (for Case 2):

$\text{Discount} = \text{Bill Amount} \times \frac{\text{Rate}}{100} \times \frac{\text{Period}}{12}$

$\text{Discount} = \textsf{₹ } \ 40,000 \times \frac{6}{100} \times \frac{2}{12} = \textsf{₹ } \ 400$

In the Books of Darshan (Drawer)

The first journal entry for the drawing of the bill is common to all cases:

Journal Entry (Common to all cases)

Case 1: When the bill was retained till maturity

Case 2: When the bill was discounted with the bank

Case 3: When the bill was endorsed to Suresh

Case 4: When the bill was sent for collection

In the Books of Varun (Drawee)

In all the four cases, Varun's transactions are the same. He accepts the bill and pays it on the due date. He is not concerned with how Darshan uses the bill. Therefore, the journal entries in his books will be identical for all circumstances.

Journal Entries (Same for all cases)

Working Notes:

1. Discounting Charges (for bill of Dec 26):

$\text{Discount} = \textsf{₹ } \ 1,080 \times \frac{12}{100} \times \frac{30}{365} \approx \textsf{₹ } \ 10.66$ (Let's use 1 month approx.)

$\text{Discount} = \textsf{₹ } \ 1,080 \times \frac{12}{100} \times \frac{1}{12} = \textsf{₹ } \ 10.80$

2. Endorsement (for bill of Dec 28):

Bill Amount = $\textsf{₹ } \ 1,800$

Amount Settled with Dream Soaps = $\textsf{₹ } \ 1,900$

Discount Received = $\textsf{₹ } \ 1,900 - \textsf{₹ } \ 1,800 = \textsf{₹ } \ 100$

In the Books of Bansal Traders (Seller/Payee)

Journal Entries

Mohan Traders' Account

Note: Since promissory notes were drawn immediately for each sale, Mohan Traders' account will not be opened. The debit which would have gone to Mohan Traders goes directly to Bills Receivable A/c, and since all payments are made, the account is not needed.

In the Books of Mohan Traders (Buyer/Maker)

Journal Entries

Bansal Traders' Account

Note: As promissory notes were issued immediately against each purchase, the credit which would have gone to Bansal Traders goes directly to Bills Payable A/c. Therefore, Bansal Traders' account will not be prepared.

Working Notes:

1. Calculation of Due Date:

Date of Bill: February 01, 2016 (2016 is a leap year, so Feb has 29 days)

Term of Bill: 30 days

Nominal Due Date: March 02, 2016 (28 days in Feb + 2 days in Mar)

Add: Days of Grace: 3 days

Legal Due Date: March 05, 2016

2. Calculation of Discounting Charges (for Case 2):

$\text{Discount} = \textsf{₹ } \ 25,000 \times \frac{6}{100} \times \frac{1}{12} = \textsf{₹ } \ 125$ (using 1 month approx for 30 days)

In the Books of Ravinderan (Drawer)

Case 1: When the bill was retained and dishonoured

Case 2: When the discounted bill was dishonoured

Case 3: When the endorsed bill was dishonoured

Case 4: When the bill sent for collection was dishonoured

In the Books of Narayanan (Drawee)

For Narayanan, the dishonour of the bill results in the cancellation of his 'Bills Payable' liability and re-establishment of his liability towards Ravinderan. This entry remains the same in all four cases, as he is only concerned with his immediate creditor, Ravinderan.

Journal Entry (Same for all cases)

Working Notes:

1. Bill Details and Due Dates (Drawn on Feb 13, 2016)

2. Calculations for Ravi's Books

• Discount on Bill 1: $\textsf{₹ } \ 5,000 \times \frac{6}{100} \times \frac{1}{12} = \textsf{₹ } \ 25$

• Discount Received on Endorsing Bill 2: $\textsf{₹ } \ 10,200 - \textsf{₹ } \ 10,000 = \textsf{₹ } \ 200$

• Interest Charged to Sudershan (for original term of bill @ 12% p.a.):

  • Bill 1: $\textsf{₹ } \ 5,000 \times \frac{12}{100} \times \frac{1}{12} = \textsf{₹ } \ 50$

  • Bill 2: $\textsf{₹ } \ 10,000 \times \frac{12}{100} \times \frac{40}{365} = \textsf{₹ } \ 131.51$

  • Bill 3: $\textsf{₹ } \ 12,000 \times \frac{12}{100} \times \frac{3}{12} = \textsf{₹ } \ 360$

  • Bill 4: $\textsf{₹ } \ 13,000 \times \frac{12}{100} \times \frac{19}{365} = \textsf{₹ } \ 81.10$

In the Books of Ravi (Seller/Drawer)

Journal Entries

Sudershan's Account

Dr.Cr.

Mustaq's Account

Dr.Cr.

In the Books of Sudershan (Buyer/Drawee)

The journal entries will be the same regardless of what Ravi did with the bills.

Journal Entries

In the Books of Mustaq (Endorsee)

Journal Entries

In the Books of Bank

Note: Journal entries in the bank's books are not typically required for commerce students at this level. The bank treats bills as loans/advances to its customers. The following are simplified entries from the bank's perspective.

Journal Entries

Note: For the bill sent for collection, the bank acts only as an agent. Thus, it makes only memorandum entries and no formal journal entry is passed in its main ledgers until the bill is actually collected. Upon dishonour, the bill is simply returned to the customer.

The act of making payment for a bill of exchange before its due date is known as Retirement of a Bill. The discount given by the holder to the drawee for such early payment is called a Rebate.

Working Notes:

1. Calculation of Due Date:

Date of Bill: January 01, 2016

Term of Bill: 2 months

Nominal Due Date: March 01, 2016

Add: Days of Grace: 3 days

Legal Due Date: March 04, 2016

2. Calculation of Rebate:

The bill was retired one month before the maturity date. Therefore, the rebate is calculated for one month.

$\text{Rebate} = \text{Bill Amount} \times \frac{\text{Rate}}{100} \times \frac{\text{Period of Rebate}}{12}$

$\text{Rebate} = \textsf{₹ } \ 20,000 \times \frac{12}{100} \times \frac{1}{12} = \textsf{₹ } \ 200$

3. Cash Paid by Muskan:

Cash Paid = Bill Amount - Rebate

Cash Paid = $\textsf{₹ } \ 20,000 - \textsf{₹ } \ 200 = \textsf{₹ } \ 19,800$

In the Books of Neha (Drawer)

Journal Entries

In the Books of Muskan (Drawee)

Journal Entries

Working Notes:

1. Bill Details (Drawn on Jan 15, 2016)

• Bill 1: Amount $\textsf{₹ } \ 5,000$, Term 1 month, Due Date: Feb 18. Endorsed. (Dishonoured - No noting charges mentioned for this bill)

• Bill 2: Amount $\textsf{₹ } \ 20,000$, Term 3 months, Due Date: Apr 18. Discounted. Dishonoured + $\textsf{₹ } \ 30$ Noting Charges.

• Bill 3: Amount $\textsf{₹ } \ 10,000$ (35,000 - 5,000 - 20,000), Term 4 months, Due Date: May 18. Sent for collection. Dishonoured + $\textsf{₹ } \ 200$ Noting Charges.

2. Calculations for Raghu's Books

• Discount on Endorsement (Bill 1): Debt Settled $\textsf{₹ } \ 5,200$ with a bill of $\textsf{₹ } \ 5,000$. Discount Received = $\textsf{₹ } \ 200$.

• Discounting Charges (Bill 2): $\textsf{₹ } \ 20,000 \times \frac{6}{100} \times \frac{3}{12} = \textsf{₹ } \ 300$.

• Total Amount Due from Devendra for Final Settlement:

  Particulars	Amount (₹)
  Amount of Second Bill	20,000
  Add: Noting Charges on Second Bill	30
  Amount of Third Bill	10,000
  Add: Noting Charges on Third Bill	200
  Add: Interest for delayed payment	1,000
  Total Amount Paid by Devendra	31,230

In the Books of Raghu (Drawer)

Journal Entries

Devendra’s Account

Dr.Cr.

In the Books of Devendra (Drawee)

Journal Entries

Raghu’s Account

Dr.Cr.

In the Books of Dewan (Endorsee)

Journal Entries

Working Notes:

1. Calculation of Due Date:

Date of Bill: January 15, 2016

Term of Bill: 2 months

Maturity Date: March 15, 2016

Add: Days of Grace: 3 days

Legal Due Date: March 18, 2016

2. Discounting Charges (for Case 2):

$\text{Discount} = \textsf{₹ } \ 25,000 \times \frac{6}{100} \times \frac{2}{12} = \textsf{₹ } \ 250$

In the Books of Kamal (Drawer)

The entry for drawing the bill is common to all cases. The entry on dishonour varies.

Common Entry: On Jan 15, 2016, Bills Receivable A/c Dr. 25,000 To Vimal's A/c 25,000.

Case 1: When the bill was retained and dishonoured

Case 2: When the discounted bill was dishonoured

Case 3: When the endorsed bill was dishonoured

Case 4: When bill sent for collection was dishonoured

In the Books of Vimal (Drawee)

For Vimal, the dishonour of the bill results in the cancellation of his 'Bills Payable' liability and re-establishment of his liability towards Kamal. This entry is the same in all four cases, as he is unaware of what Kamal did with the bill.

Journal Entry (Same for all cases)

Working Notes:

1. Calculation of Due Date:

Date of Bill: January 17, 2017

Term of Bill: 45 days

Nominal Due Date: March 03, 2017 (14 days in Jan + 28 days in Feb + 3 days in Mar)

Add: Days of Grace: 3 days

Legal Due Date: March 06, 2017

2. Calculation of Interest:

Total amount paid by Tahir = $\textsf{₹ } \ 18,700$

Amount due on dishonour (Bill + Noting Charges) = $\textsf{₹ } \ 18,000 + \textsf{₹ } \ 40 = \textsf{₹ } \ 18,040$

Interest charged = Total Payment - Amount due on dishonour

Interest = $\textsf{₹ } \ 18,700 - \textsf{₹ } \ 18,040 = \textsf{₹ } \ 660$

In the Books of Abdulla (Drawer)

Journal Entries

Tahir’s Account

Dr.Cr.

In the Books of Tahir (Drawee)

Journal Entries

Abdulla’s Account

Dr.Cr.

Working Notes:

1. Calculation of Bill Amount:

Total Sale = $\textsf{₹ } \ 19,000$

Less: Immediate Payment = $\textsf{₹ } \ 4,000$

Amount of Bill of Exchange = $\textsf{₹ } \ 15,000$

2. Calculation of Due Date:

Date of Bill: March 02, 2017

Term of Bill: 3 months

Maturity Date: June 02, 2017

Add: Days of Grace: 3 days

Legal Due Date: June 05, 2017

3. Amount due on Dishonour:

Amount due = Bill Amount + Noting Charges

Amount due = $\textsf{₹ } \ 15,000 + \textsf{₹ } \ 30 = \textsf{₹ } \ 15,030$

In the Books of Asha (Drawer)

Journal Entries

Note 1: The rate of discount is not provided in the question. Hence, the amounts for Bank A/c and Discounting Charges A/c cannot be calculated and are left blank. The focus of the question is on the dishonour entry.

In the Books of Nisha (Drawee)

Journal Entries