Bills of Exchange
A Comprehensive Set of Problems and Detailed Solutions
Specimen of Bill of Exchange
1) Prepare a Bill of exchange from the following information:
- Drawer: Bipinchand Kothari, Navi Peth, Belgaum.
- Drawee: Karimchand Punawala, 338, Maharaja Road, Solapur.
- Payee: Kevalchand Shetti, Mumbai.
- Amount: ₹7,600
- Period: Forty-Five Days
- Date of Bill: 12th Sept. 2008
- Accepted on: 16th Sept. 2008
Stamp
BILL OF EXCHANGE
Bipinchand Kothari
Navi Peth,
Belgaum.
Date: 12th September 2008
Forty-five days after date, pay to Kevalchand Shetti, Mumbai, or his order, the sum of Rupees Seven Thousand Six Hundred only, for the value received.
Sd/-
(Bipinchand Kothari)
To,
Karimchand Punawala,
338, Maharaja Road,
Solapur.
ACCEPTED
Sd/- (Karimchand Punawala)
Date: 16th September 2008
2) Prepare a Bill of Exchange from the following information:
- Drawer: Raj Patel, 14, New Road, Vijay Nagar.
- Drawee: Ram Parekh, 24, Adalat Road, Vijapur.
- Term: Eighty Days
- Date of Bill: 23rd Sept, 2008
- Accepted on: 26th Sept. 2008
- Amount: ₹7,980
Stamp
BILL OF EXCHANGE
Raj Patel
14, New Road,
Vijay Nagar.
Date: 23rd September 2008
Eighty days after date, pay to me or my order, the sum of Rupees Seven Thousand Nine Hundred Eighty only, for the value received.
Sd/-
(Raj Patel)
To,
Ram Parekh,
24, Adalat Road,
Vijapur.
ACCEPTED
Sd/- (Ram Parekh)
Date: 26th September 2008
3) Prepare Bill of Exchange from the following information:
- Drawer: Nirmal M. Nath, Kothari, Pune.
- Drawee: Sonal N. Patel, Dadar, Mumbai.
- Amount: ₹5,400
- Term: On demand
- Date of Bill: 22nd June, 2005
Note: A bill payable 'on demand' does not require acceptance from the drawee.
Stamp
BILL OF EXCHANGE
Nirmal M. Nath
Kothari,
Pune.
Date: 22nd June 2005
On demand, pay to me or my order, the sum of Rupees Five Thousand Four Hundred only, for the value received.
Sd/-
(Nirmal M. Nath)
To,
Sonal N. Patel,
Dadar,
Mumbai.
4) Partner Suraj of M/s Sangam and Co., 51, Ram Nagar, Karad, drew a bill of exchange of ₹5,000 on 2nd November, 2008, on Kumar T., M. G. Road, Mumbai, payable to them two months after sight. Kumar accepted the same for ₹4,000 only on 6th November, 2008.
Note: This is an example of a qualified acceptance (as to amount).
Stamp
BILL OF EXCHANGE
M/s Sangam and Co.
51, Ram Nagar,
Karad.
Date: 2nd November 2008
Two months after sight, pay to us or our order, the sum of Rupees Five Thousand only, for the value received.
For M/s Sangam and Co.
Sd/-
(Suraj, Partner)
To,
Kumar T.,
M. G. Road,
Mumbai.
ACCEPTED for ₹4,000 only.
Sd/- (Kumar T.)
Date: 6th November 2008
Journal Entries
6) X sells goods to Y on credit worth ₹6,000 on June 5, 2005. On the same date, he draws a bill at three months on Y for ₹6,000. Y accepts the bill. On the due date, Y pays cash to X against the bill.
Give Journal Entries in the books of X and Y.
Journal Entries in the books of X (Drawer)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 June 5 | Y's A/c Dr. To Sales A/c (Being goods sold to Y on credit) |
6,000 | 6,000 | |
| June 5 | Bills Receivable A/c Dr. To Y's A/c (Being bill drawn on and accepted by Y for 3 months) |
6,000 | 6,000 | |
| Sept 8 | Cash A/c Dr. To Bills Receivable A/c (Being cash received on maturity of the bill) |
6,000 | 6,000 |
Journal Entries in the books of Y (Drawee)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 June 5 | Purchases A/c Dr. To X's A/c (Being goods purchased from X on credit) |
6,000 | 6,000 | |
| June 5 | X's A/c Dr. To Bills Payable A/c (Being acceptance given to X for 3 months) |
6,000 | 6,000 | |
| Sept 8 | Bills Payable A/c Dr. To Cash A/c (Being cash paid on maturity of the bill) |
6,000 | 6,000 |
Date of Bill: June 5, 2005
Term: 3 months
Nominal Due Date: September 5, 2005
Days of Grace: 3 days
Legal Due Date: September 8, 2005
7) On 1st January, 2005 P sells goods to Q worth ₹10,000. He draws a bill of exchange on Q, payable after three months. Q accepts the bill. On 3rd January, 2005 P purchases goods worth ₹15,000 from R. P endorses the above bill to R on the same date and pays the balance. R collects cash on the due date.
Pass necessary Journal Entries without narrations in the books of P, Q & R.
Journal Entries in the books of P (Drawer/Endorser)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 Jan 1 | Q's A/c Dr. To Sales A/c | 10,000 | 10,000 | |
| Jan 1 | Bills Receivable A/c Dr. To Q's A/c | 10,000 | 10,000 | |
| Jan 3 | Purchases A/c Dr. To R's A/c | 15,000 | 15,000 | |
| Jan 3 | R's A/c Dr. To Bills Receivable A/c To Cash/Bank A/c | 15,000 | 10,000 5,000 |
Journal Entries in the books of Q (Drawee)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 Jan 1 | Purchases A/c Dr. To P's A/c | 10,000 | 10,000 | |
| Jan 1 | P's A/c Dr. To Bills Payable A/c | 10,000 | 10,000 | |
| April 4 | Bills Payable A/c Dr. To Cash/Bank A/c | 10,000 | 10,000 |
Journal Entries in the books of R (Endorsee)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 Jan 3 | P's A/c Dr. To Sales A/c | 15,000 | 15,000 | |
| Jan 3 | Bills Receivable A/c Dr. Cash/Bank A/c Dr. To P's A/c | 10,000 5,000 | 15,000 | |
| April 4 | Cash/Bank A/c Dr. To Bills Receivable A/c | 10,000 | 10,000 |
8) On 1st March, 2005, X draws a bill on Y for ₹12,000 at three months. Y accepts it. On 3rd March, 2005, X discounts the bill at 10% p.a. The bill is duly met. Give Journal Entries in the books of X and Y.
Discount = Bill Amount × Rate × Unexpired Period
Discount = ₹12,000 × (10/100) × (3/12) = ₹300
Journal Entries in the books of X (Drawer)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 Mar 1 | Bills Receivable A/c Dr. To Y's A/c (Being bill drawn on and accepted by Y) | 12,000 | 12,000 | |
| Mar 3 | Bank A/c Dr. Discount A/c Dr. To Bills Receivable A/c (Being bill discounted with the bank at 10% p.a.) | 11,700 300 | 12,000 |
Journal Entries in the books of Y (Drawee)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 Mar 1 | X's A/c Dr. To Bills Payable A/c (Being acceptance given to X for 3 months) | 12,000 | 12,000 | |
| June 4 | Bills Payable A/c Dr. To Bank A/c (Being bill honoured on the due date) | 12,000 | 12,000 |
9) Anand draws a bill of exchange on Kisan for ₹4,000 on April 1, 2005 payable after three months. Kisan accepts it. On 3rd July, Anand sends the bill to his bank for collection. On the due date, the bank presents it to Kisan and realises the amount. The Bank charges ₹15 as collection charges to Anand.
Give Journal Entries in the books of Anand and Kisan.
Journal Entries in the books of Anand (Drawer)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 April 1 | Bills Receivable A/c Dr. To Kisan's A/c (Being bill drawn on and accepted by Kisan) | 4,000 | 4,000 | |
| July 3 | Bill Sent for Collection A/c Dr. To Bills Receivable A/c (Being bill sent to bank for collection) | 4,000 | 4,000 | |
| July 4 | Bank A/c Dr. Bank Charges A/c Dr. To Bill Sent for Collection A/c (Being bill collected by bank and charges levied) | 3,985 15 | 4,000 |
Journal Entries in the books of Kisan (Drawee)
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| 2005 April 1 | Anand's A/c Dr. To Bills Payable A/c (Being acceptance given to Anand) | 4,000 | 4,000 | |
| July 4 | Bills Payable A/c Dr. To Bank A/c (Being bill paid on the due date) | 4,000 | 4,000 |
Renewal, Dishonour & Insolvency
11) Anjali of Nagpur sold goods worth ₹25,000 to Rupali of Amaravati. On the next day, Rupali paid ₹10,000 in cash and accepted a two months bill for the balance drawn by Anjali. Anjali discounted the bill at 12% p.a. with her bank. Before the due date, Rupali finds herself unable to make payment of the bill and requests Anjali to renew it. Anjali accepts the proposal on the condition that Rupali should pay ₹5,000 in cash and accept a new bill for one month along with interest of ₹200 for the balance. These arrangements were carried through. The bill was met on the due date.
Give journal entries in the books of Anjali.
1. Original Bill Amount = ₹25,000 (Sales) - ₹10,000 (Cash) = ₹15,000
2. Discount on Bill = ₹15,000 × 12% × (2/12) = ₹300
3. Amount due on renewal = ₹15,000 (original bill) - ₹5,000 (cash paid) = ₹10,000
4. New Bill Amount = ₹10,000 (Balance) + ₹200 (Interest) = ₹10,200
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| (i) | Rupali's A/c Dr. To Sales A/c (Being goods sold to Rupali on credit) | 25,000 | 25,000 | |
| (ii) | Cash/Bank A/c Dr. Bills Receivable A/c Dr. To Rupali's A/c (Being part payment and acceptance received) | 10,000 15,000 | 25,000 | |
| (iii) | Bank A/c Dr. Discount A/c Dr. To Bills Receivable A/c (Being bill discounted with the bank) | 14,700 300 | 15,000 | |
| (iv) | Rupali's A/c Dr. To Bank A/c (Being original bill dishonoured on due date) | 15,000 | 15,000 | |
| (v) | Rupali's A/c Dr. To Interest A/c (Being interest charged for renewal) | 200 | 200 | |
| (vi) | Cash/Bank A/c Dr. New Bills Receivable A/c Dr. To Rupali's A/c (Being part payment and new acceptance received) | 5,000 10,200 | 15,200 | |
| (vii) | Cash/Bank A/c Dr. To New Bills Receivable A/c (Being new bill honoured on due date) | 10,200 | 10,200 |
12) Rajesh owes Suresh ₹12,000. Rajesh accepted a bill for 3 months drawn by Suresh for ₹12,000. Suresh discounted the bill with his bank for ₹11,700. On the due date the bill was dishonoured. Noting charges amounted to ₹30 paid by the Bank. Rajesh paid half the amount of the bill and the full amount of noting charges, and accepted a bill for the balance including interest of ₹150.
Pass journal entries in the books of Suresh and show Rajesh’s A/c in his books.
Journal Entries in the books of Suresh
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| (i) | Bills Receivable A/c Dr. To Rajesh's A/c (Being bill accepted by Rajesh) | 12,000 | 12,000 | |
| (ii) | Bank A/c Dr. Discount A/c Dr. To Bills Receivable A/c (Being bill discounted with bank, discount ₹300) | 11,700 300 | 12,000 | |
| (iii) | Rajesh's A/c Dr. To Bank A/c (Being discounted bill dishonoured, noting charges ₹30) | 12,030 | 12,030 | |
| (iv) | Rajesh's A/c Dr. To Interest A/c (Being interest charged for renewal) | 150 | 150 | |
| (v) | Cash/Bank A/c Dr. New Bills Receivable A/c Dr. To Rajesh's A/c (Being part payment and new bill received) | 6,030 6,150 | 12,180 |
- Total due from Rajesh: ₹12,030 (Bill + Noting Charges)
- Cash Paid: Half of bill (12000/2) + Full noting charges (30) = 6000 + 30 = ₹6,030
- Balance: 12030 - 6030 = ₹6,000
- New Bill Amount = Balance + Interest = 6000 + 150 = ₹6,150
Rajesh's Account (in Suresh's Books)
| Dr. | Cr. | ||||||
|---|---|---|---|---|---|---|---|
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
| To Balance b/d | 12,000 | By Bills Receivable A/c | 12,000 | ||||
| To Bank A/c (Dishonour) | 12,030 | By Cash/Bank A/c | 6,030 | ||||
| To Interest A/c | 150 | By New B/R A/c | 6,150 | ||||
| By Balance c/d | 0 | ||||||
| Total | 24,180 | Total | 24,180 | ||||
13) Vikrant sold goods to the value of ₹20,000 to Vishwajeet. Vishwajeet accepted the bill for ₹20,000 at three months. Vikrant discounted the bill at 15% p.a. with his bank. At maturity, the bill was returned dishonoured with ₹250 as noting charges. Vishwajeet paid ₹10,000 and the amount of noting charges and gave Vikrant another bill at three months for the balance with interest at 12% p.a. But before due date, Vishwajeet became insolvent and he paid 75 paise in a rupee from his private estate.
Pass journal entries in the books of Vikrant.
1. Discount = ₹20,000 × 15% × (3/12) = ₹750
2. Balance for new bill = ₹20,000 (original bill) - ₹10,000 (cash paid) = ₹10,000
3. Interest on balance = ₹10,000 × 12% × (3/12) = ₹300
4. New Bill Amount = ₹10,000 (Balance) + ₹300 (Interest) = ₹10,300
5. Amount Recovered = ₹10,300 × 0.75 = ₹7,725
6. Bad Debts = ₹10,300 - ₹7,725 = ₹2,575
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| (i) | Vishwajeet's A/c Dr. To Sales A/c | 20,000 | 20,000 | |
| (ii) | Bills Receivable A/c Dr. To Vishwajeet's A/c | 20,000 | 20,000 | |
| (iii) | Bank A/c Dr. Discount A/c Dr. To Bills Receivable A/c | 19,250 750 | 20,000 | |
| (iv) | Vishwajeet's A/c Dr. To Bank A/c (Being bill dishonoured, noting charges ₹250) | 20,250 | 20,250 | |
| (v) | Vishwajeet's A/c Dr. To Interest A/c | 300 | 300 | |
| (vi) | Cash/Bank A/c Dr. New Bills Receivable A/c Dr. To Vishwajeet's A/c (Cash paid: 10000 + 250) | 10,250 10,300 | 20,550 | |
| (vii) | Cash/Bank A/c Dr. Bad Debts A/c Dr. To New Bills Receivable A/c (Being final dividend received and balance written off) | 7,725 2,575 | 10,300 |
18) Journalise the following transactions in the books of Tirupati:
- (A) Kailas informed Tirupati that Ameet’s acceptance for ₹1,000 endorsed to him, has been dishonoured. Noting charges amounted to ₹40.
- (B) Vilas renews his acceptance to Tirupati for ₹800 by paying ₹400 in cash and accepted a fresh bill for the balance plus interest at 12% p.a. for 3 months.
- (C) Kalpana’s acceptance to Tirupati for ₹6,000 retired one month before the due date at a discount of 10% p.a.
- (D) Bank informs Tirupati of the dishonour of Kavita’s acceptance of ₹2,500 discounted with the Bank. Noting charges amounted to ₹50.
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| (A) Dishonour of Endorsed Bill | ||||
| Ameet's A/c Dr. To Kailas's A/c (Being endorsed bill of Ameet dishonoured and noting charges paid by Kailas) | 1,040 | 1,040 | ||
| (B) Renewal of Bill | ||||
| Calculation: Interest = ₹400 × 12% × (3/12) = ₹12. New Bill = ₹400 + ₹12 = ₹412. | ||||
| 1. | Vilas's A/c Dr. To Bills Receivable A/c (Being old acceptance cancelled for renewal) | 800 | 800 | |
| 2. | Vilas's A/c Dr. To Interest A/c (Being interest charged for renewal) | 12 | 12 | |
| 3. | Cash/Bank A/c Dr. New Bills Receivable A/c Dr. To Vilas's A/c (Being part payment and new bill received) | 400 412 | 812 | |
| (C) Retirement of Bill | ||||
| Calculation: Rebate/Discount = ₹6,000 × 10% × (1/12) = ₹50. | ||||
| Cash/Bank A/c Dr. Rebate/Discount on Bill A/c Dr. To Bills Receivable A/c (Being Kalpana's acceptance retired and rebate allowed) | 5,950 50 | 6,000 | ||
| (D) Dishonour of Discounted Bill | ||||
| Kavita's A/c Dr. To Bank A/c (Being discounted bill dishonoured and noting charges paid by bank) | 2,550 | 2,550 | ||