On 14th May, 2012 Rohit sold goods on credit to Devidas for Rs. 30,000 on the same date Rohit draws a bill on Devidas for Rs. 30,000 at 4 months. Devidas accepted it an returned to Rohit.

Accounting Problem: Bill of Exchange Renewal

On 14th May 2012, Rohit sold goods on credit to Devidas for Rs. 30,000. On the same date, Rohit draws a bill on Devidas for Rs. 30,000 at 4 months, which Devidas accepted it and returned to Rohit.

On 17th June 2012, Rohit discounted the bill with his bank at 10% p.a.

On the due date, Devidas finds himself unable to make the payment and requests Rohit to renew it. Rohit accepted the proposal on the condition that Devidas should pay Rs. 10,000 on account, plus interest of Rs. 500 in cash, and accept a new bill for the balance for 2 months. These arrangements were carried through.

Task:

Give Journal Entries in the Books of Rohit.

Solution: Journal Entries in the Books of Rohit

Date Particulars L.F. Debit (Rs.) Credit (Rs.)
14-05-2012 Devidas’s A/c Dr.
    To Sales A/c		 30,000 30,000
(Being goods sold on credit)
14-05-2012 Bills Receivable A/c Dr.
    To Devidas’s A/c		 30,000 30,000
(Being the bill drawn and accepted)
17-06-2012 Bank A/c Dr.
Discount A/c Dr.
    To Bills Receivable A/c		 29,250
750		 30,000
(Being the bill discounted with the bank)
17-09-2012 Devidas’s A/c Dr.
    To Bank A/c		 30,000 30,000
(Being the discounted bill dishonoured by Devidas on due date)
17-09-2012 Devidas’s A/c Dr.
    To Interest A/c		 500 500
(Being the interest charged for renewal)
17-09-2012 Cash A/c Dr.
    To Devidas’s A/c		 10,500 10,500
(Being part payment of Rs. 10,000 and interest of Rs. 500 received)
17-09-2012 Bills Receivable A/c (New) Dr.
    To Devidas’s A/c		 20,000 20,000
(Being new bill drawn for the balance amount)

Working Notes

  1. Calculation of Discount:
    The discount is calculated on the amount of the bill for the unexpired period from the date of discounting to the due date.

    Due Date: 14th May + 4 Months + 3 Grace Days = 17th September.
    Date of Discounting: 17th June.
    Unexpired Period: 3 months (from 17th June to 17th Sept).
    Formula: Amount × Rate × Period
    30,000 × (10/100) × (3/12) = Rs. 750

  2. Calculation of New Bill Amount:
    The new bill is for the remaining balance after part payment.

    Amount of Dishonoured Bill: Rs. 30,000
    Less: Part Payment Received (excluding interest): Rs. 10,000
    Balance for New Bill: 30,000 - 10,000 = Rs. 20,000

Labels: , , ,