Bills of Exchange and Promissory NotesQ-4 | Bills of Exchange and Promissory NotesQuestion 5101 of 26
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Harry draws a bill on Sejal for ₹ 60,000 on 01.01.2023 for 3 months. Sejal accepts the bill and sends it back to Harry to get it discounted for 56,000. Harry remits 1/4th amount to Sejal. On the due date, Harry was unable to remit his share to Sejal, rather accepts a bill of ₹ 80,000 for a period of 3 months. This bill was discounted by Sejal for 74,600. Sejal after making the payment of first bill sent 3/4th of the amount remaining to Harry. On maturity of the bill, Harry became bankrupt and his estate paying 40 paise in the rupee. Give journal entries in the books of Sejal. Also prepare ledger account of Harry. All workings should form part of the answer. [Sept. 2024, 10 Marks]

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Detailed Solution & Explanation

### In the Books of Sejal ### Journal Entries | Date / No. | Particulars | L.F. | Debit (₹) | Credit (₹) | | :--- | :--- | :---: | ---: | ---: | | (i) | Harry's A/c
    To Bills Payable A/c
(Being bills of exchange accepted and sent to Harry) | | 60,000 |
60,000 | | (ii) | Bank A/c
Discounting charges A/c
    To Harry A/c
(Being the amount received from Harry on account of the bill receivable) | | 14,000
1,000 |

15,000 | | (iii) | Bills Receivable A/c
    To Harry's A/c
(Being the bill accepted by Harry) | | 80,000 |
80,000 | | (iv) | Bank A/c
Discounting charges A/c
    To Bills Receivable A/c
(Being Harry's acceptance discounted with bank) | | 74,600
5,400 |

80,000 | | (v) | Bills Payable A/c
    To Bank A/c
(Being the acceptance met on the due date) | | 60,000 |
60,000 | | (vi) | Harry's A/c
    To Bank A/c
    To Discounting charges A/c (WN 1)
(Being the amount remitted and discounting charges debited to Harry) | | 15,000 |
10,950
4,050 | | (vii) | Harry's A/c
    To Bank A/c
(Being Harry's acceptance which was discounted dishonoured due to Harry's Bankruptcy) | | 80,000 |
80,000 | | (viii) | Bank A/c
Bad Debts A/c
    To Harry's A/c
(Being amount received from Harry and the Balance being written off as bad debt) | | 24,000
36,000 |

60,000 |
### Harry's Account | Particulars | Amt | Particulars | Amt | | :--- | ---: | :--- | ---: | | To Bills Payable A/c | 60,000 | By Bank A/c | 14,000 | | To Bank A/c | 10,950 | By Discounting charges A/c | 1,000 | | To Discounting charges A/c | 4,050 | By Bills Receivable A/c | 80,000 | | To Bank A/c | 80,000 | By Bank A/c | 24,000 | | | | By Bad Debts A/c | 36,000 | | **TOTAL** | **1,55,000** | **TOTAL** | **1,55,000** |
### Working Notes: **WN 1. Share of Harry in discounting charges of 2nd Bill:** Discounting charges×Amount Due/Discounted Amt of 2nd bill=5400×55,950∗74,600=4,050\text{Discounting charges} \times \text{Amount Due} / \text{Discounted Amt of 2nd bill} = 5400 \times \frac{55,950^*}{74,600} = 4,050 \* [45,000+10,950]\displaystyle [45,000 + 10,950]

About This Chapter: Special Transactions

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Bills of Exchange, Consignment, Average Due Date

This chapter covers Bills of Exchange, Consignment, Average Due Date and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Promissory Note

An instrument in writing containing an unconditional undertaking signed by the maker to pay a certain sum of money.

Ledger

The principal book of accounts in which all business transactions are classified and posted under separate account heads. It is also called the 'Book of Final Entry' or the 'King of All Books'.

Related Comparison Tables

Promissory Note vs Bill of Exchange: Negotiable Instruments

More Questions from Bills of Exchange and Promissory Notes

A firm purchased a second-hand machinery on April 1, 2021 for 15,00,000 subsequent to which ₹ 2,00,000 were spent on its repairs and installation. On October 1, 2021 another machinery was purchased for 9,00,000 and cost of installing the machine in a new plant is ₹ 20,000. The firm also shifted the machinery purchased on April 1, 2021 to the new plant and incurred freight of 10,000. They adopted a policy of charging depreciation @ 12% per annum on diminishing balance method. On April 1, 2023 it was decided to change the method and rate of depreciation to straight line basis. On this date, the remaining useful life was assessed as 5 years for both the machines purchased with no scrap value. On October 1, 2023 the first machine become outdated and sold for 2,50,000. On the same date, another machinery was purchased for * 8,50,000. The estimated useful life of the machine is 10 years and residual value is ₹ 30,000. You are required to prepare the machinery account for the year ending March 31, 2024. [Jan. 2025, 10 Marks]

Bill of exchange and the various parties to it. [MTP Jan. 2025]

Meaning of Promissory Note

Retirement of bill [RTP Jan. 2025]; [MTP Jan. 2025]

Bill of Exchange and Promissory Note

A promissory note can be made payable to the bearer. [Sep. 2024, 2 Marks]

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