Bills of Exchange Solution | March 2018 HSC Board Paper

Q. 4. Bills of Exchange

March 2018 HSC Board Paper Solution

Refer to the question paper image below.

Journal Entries

In the books of Sayali

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Date	Particulars	L.F.	Debit (Rs.)	Credit (Rs.)
(1)	Manali’s A/cDr. To Sales A/c [Being the goods are sold]		40,000	40,000
(2)	Bills Receivable A/cDr. To Manali’s A/c [Being the bill is drawn]		40,000	40,000
(3)	Bank A/cDr. Discount A/cDr. To Bills Receivable A/c [Being the bill is discounted]		38,800 1,200	40,000
(4)	Manali’s A/cDr. To Bank A/c [Being the bill is dishonoured and noting charges charged]		40,300	40,300
(5)	Manali’s A/cDr. To Interest A/c [Being the interest is charged]		750	750
(6)	Cash A/cDr. To Manali’s A/c [Being the part payment is made along with Noting charges]		20,300	20,300
(7)	Bills Receivable A/cDr. To Manali’s A/c [Being the new bill is drawn along with interest]		20,750	20,750
(8)	Manali’s A/cDr. To Bills Receivable A/c [Being the bill is dishonoured]		20,750	20,750
(9)	Cash A/cDr. Bad debts A/cDr. To Manali’s A/c [Being the drawee become insolvent and only 40 % of the amount could be recovered from her private estate]		8,300 12,450	20,750

BILLS OF EXCHANGE HSC 12TH STANDARD

Introduction

A bill of exchange 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.

Parties to a Bill of Exchange

There are three parties to a bill of exchange:

• Drawer: The person who makes or draws the bill. He is the creditor.
• Drawee: The person on whom the bill is drawn. He is the debtor who has to pay the money.
• Payee: The person to whom the payment is to be made. The drawer himself can be the payee.

₹ 35,000/-

Reena
Reena's Address,
City, Pincode.
Date: 15th May, 2023

Three months after date, pay to me or my order, the sum of Rupees Thirty Five Thousand only, for the value received.

To,
Aakash
Aakash's Address,
City, Pincode.

REVENUE
STAMP

Accepted
Sd/- Aakash
Date: 15-05-2023

Sd/- Reena
(Drawer)

Specimen of a Bill of Exchange

Question 1: Bill Honoured on Due Date

On 15th May, 2023, Reena sold goods to Aakash for ₹ 35,000. On the same day, Reena drew a bill of exchange on Aakash for the amount at 3 months. Aakash accepted the bill and returned it to Reena. Reena retained the bill till the due date. On the due date, Aakash honoured his acceptance.
You are required to pass Journal Entries in the books of Reena and Aakash.

Solution to Question 1

In the Books of Reena (Drawer)

Journal Entries

Date	Particulars	L.F.	Debit Amount (₹)	Credit Amount (₹)
2023 May 15	Aakash's A/c     Dr. To Sales A/c (Being goods sold on credit to Aakash)		35,000	35,000
May 15	Bills Receivable A/c     Dr. To Aakash's A/c (Being bill drawn and acceptance received from Aakash)		35,000	35,000
Aug 14	Cash/Bank A/c     Dr. To Bills Receivable A/c (Being bill honoured on the due date)		35,000	35,000
Total			1,05,000	1,05,000

In the Books of Aakash (Drawee)

Journal Entries

Date	Particulars	L.F.	Debit Amount (₹)	Credit Amount (₹)
2023 May 15	Purchases A/c     Dr. To Reena's A/c (Being goods purchased from Reena on credit)		35,000	35,000
May 15	Reena's A/c     Dr. To Bills Payable A/c (Being acceptance given to Reena)		35,000	35,000
Aug 14	Bills Payable A/c     Dr. To Cash/Bank A/c (Being bill honoured on the due date)		35,000	35,000
Total			1,05,000	1,05,000

Working Note: Due Date Calculation

The bill is drawn on 15th May, 2023 for 3 months.

1. Period in Months: 15th May, 2023 + 3 months = 15th August, 2023.
2. Add Grace Days: 15th August + 3 Grace Days = 18th August, 2023.

However, 15th August is a Public Holiday (Independence Day). According to the Negotiable Instruments Act, if the due date falls on a public holiday, the preceding business day is considered the due date.
Therefore, the Legal Due Date is 14th August, 2023.

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On 1st March, 2014. Bheem sold goods to Raju worth Rs. 10,000/- and Raju accepted the Bill for Rs. 10,000/- at 3 months drawn by Bheem. Bheem discounted the bill with his bank @ 10% p.a. On due date the bill was dishonoured and Raju requested Bheem to accept Rs. 4,000/- immediately and draw upon him a new bill for the remaining amount at 3 months together with an interest @ 10% p.a. Bheem agreed. The second Bill was duly honoured. Give Journal entries in the books of Bheem.

Journal Entries in the Books of Bheem (Drawer)

Date	Particulars	LF	Debit (Rs.)	Credit (Rs.)
1.3.14	Raju's A/c …… Dr.		10000
	To Sales A/c			10000
	[Being the goods are sold]
1.3.14	Bills Receivable A/c  ..... Dr.		10000
	To Raju's A/c			10000
	[Being the Bill is drawn]
1.3.14	Bank A/c ..... Dr.		9750
	Discount A/c .... Dr.		250
	To Bills Receivable A/c			10000
	[Being the bill is discounted]
4.6.14	Raju's A/c ...... Dr.		10000
	To Bank A/c			10000
	[Being the discounted bill is dishonoured]
4.6.14	Raju's A/c ....Dr.		150
	To Interest A/c			150
	[Being the interest is charged]
4.6.14	Bank A/c ... Dr.		4000
	To Raju's A/c			4000
	[Being the part payment is made]
4.6.14	Bills receivable A/c ......Dr.		6150
	To Raju's A/c			6150
	[Being the new bill is drawn along with interest]
7.9.14	Bank A/c ..... Dr.		6150
	To Bills Receivable A/c			6150
	[Being the new bill is duly honoured]