PANCHAKSHARI’S PROFESSIONAL ACADEMY PVT LTD
(Your Lifelong Knowledge Partner…)
CHAPTER 9
BILL OF EXCHANGE
Introduction:
When goods are sold at credit, then the purchaser gives are document as a security of future payment it is called as Bills of Exchange. It is a substitute to immediate cash payment.
Definition:
“A bill of exchange is an instrument in writing containing and unconditional order signed by the maker directing a certain person to pay a certain amount to or to the order of a certain person or to the bearer of the instrument”
It is as per negotiable instrument act, 1881.
It is also called as a trade bill it is drawn in cases of a credit transaction.
1.PARTIES TO BILL OF EXCHANGE
1.Drawer: He is a person who draws a bill.
2.Drawee: He is a person on whom the bill is drawn. (When the drawee accepts the bill he is called as acceptor.)
3.Payee: The person to whom the amount of the bill is payable is called as payee. He may be the drawer or his agent.
2.Tenor of the bill: It means the period of the bill. Egg. 1 month, 3 months, 50 days.
3.Holder in due course: The person on the payee who is to receive the amount of the bill on the due is called as “Holder in due course”
4.Due date:The date on which a bill falls due for payment is called as “due date” i.e. the date when payment of bill is to be made.
If the due date falls on Sunday or any other public holiday like (26th Jan. 15Aug.) the payment of the bill is to be made on the next preceding working day.
E.g.: if the due date is 26th January the bill must be paid 25th January if 25th January is a Sunday then payment must be made 24th January.
5.Grace days: The three days period allowed in addition to the period of the bill are called as ‘Grace Days’.
In respect of a bill payable on demand or at sight three days of grace are but to be allowing, because such bill does not have any period.
6.Stamp: A bill of exchange must bear a revenue stamp as per the Stamp
Duty Act but if the bill is payable on demand or at sight, the stamp is
Not required.
7.Acceptance: Every bill of exchange must be accepted by the drawee. The acceptance is the assent (permission) of the drawee to the bill drawn on him.
a) General acceptance: When the drawee accepts a bill without any condition it is called as general acceptance or unconditional acceptance.
b) Qualified or special acceptance or conditional acceptance: When the bill is accepted by the drawee a subject to certain conditional or conditions, it is called as conditional or qualified acceptance.
8.Honour of a bill: When the acceptor of a bill pays the amount of the
Bill on the due date, the bill is said to be honoured.
9.Dishonour of a bill: when the acceptor refuses to pay the amount of he bill on the due date, the bill is said to be dishonoured for payment.
It the acceptor refuses to accept the bill, the bill is said to be dishonoured for acceptance.
10. Discounting of a bill: discounting of a bill means selling the bill to the bank or a bill- broker for cash in consideration of a small charges known as a discount and that also before the due date of a bill.
Definition: proceeds of the Bill: “it is the amount of the billreceived by the drawer or holder of the bill on discounting the bill with the bank before the due date and after deducting the discount.”
11.Endorsement: Endorsement means transfer of a bill to other party
Or to the creditor by signing the bill on the backside of a bill.
Types of endorsement:
a)Blank endorsement: It the transfer puts his signature on the backside of the bill without the name of the transferee is called as “Blank Endorsement”.
b)Special endorsement: The transfer signs the bill on its backside and also writes the name of the transferee is called as “special Endorsement.
12.Endorser: He is a person who endorses the bill or transfers the bill to other party.
13.Endorsee: He is the person to whom the bill is endorsed or transferred.
14.Noting & protesting: It means recording the fact has dishonoured of a bill on the face of the bill by” Notary Public”.
Notary Public: He is the Government Officer who records the fact of dishonoured of a bill of payment.
Noting Charges: It means the fees charges by the notary public for recording the fact of dishonoured of a bill.
Protesting: protest is formally prepared by the notary public for attesting the dishonour of the bill. This protest is regarded as a sufficient proof for the dishonour of the bill. Such protest is prepared only if asked by the drawer.
Protesting is acts of preparing protest incase of dishonoured of a bill.
15.Promissory Note: It is a written promised or instrument, which is unconditional, signed by the maker, to pay on demand or at a particulars date, to a certain person or to his order or to the bearer of the instrument, ofcourse a certain amount.
16.Parties to promissory Note:
(i)The maker or promise: He is the person who signs a promissory note and gives a promise to pay a certain amount to a certain person.
(ii)Payee: He is the person to whom the amount is payable.
Note: a promissory note does not need any acceptance.
SPECIMEN OF A BILL OF EXCHANGE
BILL OF EXCHANGE
Name and address of the Drawer
STAMP
______
______
______after date pay me or my order, the sum of Rupees
______(in words) for the value received.
Rs.
sd/-
(Drawer)
To,
Name and address of drawee
______
______
______
Accepted/-
Sad/- of drawee
______
1.Prepare a bill of exchange for the following:
Drawer: Neeraj Joshi; M.G. Road, Dombivali.
Drawee: Sachin Sharma, 29, Amardeep, Thane
Payee: Amarnath Patil, Nasik.
Period: 60 days
Date of Bill: 15th March, 1995
Accepted on: 20th March, 1995
Amount: Rs.7500
2.Prepare a bill of exchange for the following:
Drawer: Bajirav Patil; Main Road, Kopargaon.
Drawee: GulabRao Mane, Gangapur.
Period: 3 months.
Date of Bill: 17th February, 01
Accepted on: 20th February 01
Amount: Rs.4000
3.Prepare a bill of exchange for the following:
Drawer: R.R. Rangole, Ratnagiri
Drawee: S.S. Kolhe, Sangali.
Period: 2 month
Date of Bill: 30th April, 2005
Accepted on: 10th May, 2005
Amount: Rs.3000
4.Prepare a bill of exchange for the following:
Drawer: Rasiklal Parekh, Pune
Drawee: Maniklal Doshi, Mumbai
Payee: Jeevanlal Shah, Mumbai
Period: 3 month
Date of Bill: 15th June, 2004
Accepted on: 18th July, 2004 for Rs. 9000 only
Amount: Rs.10, 000
5.Prepare a bill of exchange for the following:
Drawer: S. S. Surve M.G. Road, Mumbai
Drawee: S. G. Ghate, Mumbai
Period: 2 month
Date of Bill: 10th January 90
Accepted on: 10th January 90 as the drawee
Amount: Rs.4000
6. Partner Prabhakar of M/s Sidheshwar Co. 51, Navi Peth, Sholapur drew a Bill of Exchange of Rs. 2,000/- on 13th December, 1976 on Kumar, M.G. Road, Bombay – 1 payable to them or to their order two months after date. Kumar accepted the same for Rs. 1,000/- only on 15th December, 1976.
Prepare Bill of Exchange
7. Prepare a Bill of Exchange from the following particulars.
Drawer: R.K. Samarth, BhusawalPeriod : 2 Months
Drawee: J.P. Surana, JalgaonDate of Bill: 30th April, 1977
Amount: Rs. 30,000Accepted on: 10th May, 1977
8. On 20th August, 1976 Mr. Ashok Gupta of Delhi, draws bill of exchange on
Mr. Deepak Desai of Kanpur, for a period of one month for Rs. 3,000 only. On 25th August, 1976, Mr. Desai accepted the bill.
Prepare the form of the bill.
9. From the following information prepare a Bill of Exchange.
Drawer: Ramlal Gupta, WashimDate of Bill : 15th January, 1977
Drawee: Jivanlal Chandak, JalanaAccepted on : 25th January, 1977
Payee: Premchand Nanoti, JalanaAmount: Rs. 10,000
Period : 3 months
10. From the following information prepare a Bill of Exchange.
Drawer: Dattajirao Gaikwad, Pune Date of Bill : 25th March, 1979
Drawee: Madhu Shinde, Ambajogai Accepted on : 5th April, 1979
Payee: shrirangrao More, AmbajogaiAmount: Rs. 25,000
Period : 2 months
-Calculate legal Due Date of Bills given:
Sr.no. / Date of Bill / Period of Bill / Sr.No. / Date of Bill / Period of Bill1 / 28.1.2009 / 1 month / 6 / 12.6.2009 / 60 days
2 / 10.2.2009 / 2 month / 7 / 30.6.2009 / 90 days
3 / 10.3.2009 / 2 month / 8 / 1.7.2009 / 120 days
4 / 19.3.2009 / 35 days / 9 / 10.8.2009 / 120 days
5 / 20.2.2009 / 45 days / 10 / 12.10.2009 / 3 months
JOURNAL ENTRIES.
Transaction / Drawer / Drawee- Sale of goods on credit
To Sales A/c / Purchase A/c Dr.
To Drawee’s A/c
- Acceptance of bill by drawee
To Drawee’s A/c / Drawer,s A/c Dr.
To Bills Payable A/c
- Bill retained and honoured
To Bills Receivable A/c / Bills Payable A/c Dr.
To Cash/Bank A/c
- Discounting the Bill
Discount A/c Dr.
To Bills Receivable A/c / No Entry
- Discounted Bill Honoured
To Cash/bank A/c
- Discounted Bill dishonoured
To Bank A/c / Bills Payable Dr.
To Drawer’s A/c
- Endorsement of bill
To bills Receivable A/c / No Entry
- Endorsed bill honoured
To Cash/ Bank A/c
- Endorsed bill dishonoured
To Endorsee’s A/c / Bills Payable A/c Dr.
To Drawer A/c
- Sending the bill to the bank of collection
To Bills Receivable A/c / No Entry
- Bill sent to the bank for collection honoured
Bank Charges A/c Dr.
To Bank for collection A/c / Bills Payable A/c Dr.
To cash/ Bank A/c
- Bill sent to the bank for collection dishonoured
To Bill sent to the bank for collection A/c / Bills Payable A/c Dr.
To Drawer A/c
- Retirement of the Bill
Rebate A/c Dr.
To Bills Receivable A/c / Bills Payable A/c Dr.
To Cash/ Bank A/c
To Discount A/c
- Renewal of the Bill
a)Cancellation of first bill / Drawee’s A/c Dr.
To Bills Receivable A/c / Bills Payable A/c Dr.
To Drawer’s A/c
b)Part payment by drawee / Cash A/c Dr.
To Drawee’s A/c / Drawer’s A/c Dr.
To Cash A/c
c)Interest charged to drawee / Drawee’s A/c Dr.
To Interest A/c / Interest A/c Dr.
To Drawee A/c
d)Acceptance of new bill / Bills Receivable A/c Dr.
To Drawee’s A/c / Drawee’s A/c Dr.
To Bills Payable A/c
- For payment of Noting charges
a)Payment by drawer / Drawee’s A/c Dr.
To Cash/Bank A/c / Noting charges A/c Dr.
To Drawer’s A/c
b)Payment by bank / Drawee’s A/c Dr.
To Bank A/c / Noting charges A/c Dr.
To Drawer’s A/c
c)Payment by endorsee / Drawee’s A/c Dr.
To Endorsee’s A/c / Noting charges A/c Dr.
To Drawer’s A/c
- Insolvency of Drawee
a)Dishonour of Bill / Drawee’s A/c Dr.
To Bills Receivable A/c / Bills Payable A/c Dr.
To Drawer’s A/c
b)Part of the amount due recovered in full settlement from the estate of drawee / Cash/ Bank A/c Dr.
Bad Debts A/c Dr.
To Drawee’s A/c / Drawer’s A/c Dr.
To Cash/Bank A/c
To Deficiency A/c
Problem:
Bill kept by Drawer + Properly Honoured:
1.Sold goods of Rs.20, 000 to B.__A draws the bill___ B accepted the bill ___ on due date ____ B paid the amount of bill.
2. Mr. Anil sold goods of Rs.50, 000 to Mr. Mohan on 10th Nov. 05. Drawer draws the bill. On 20th Nov 2005, Mohan accepted the bill on 20th Nov. 2005. On 31st December.2005 i.e. on due date Mohan paid the amount.
Bills receivable discounted + honoured:
3. X sold goods of Rs. 80,000 to Y. Y accepted the bill. X discounted the bill for Rs. 77,000. On due date, Y paid the bill amount to bank & bill was honoured.
4. Ashok sold goods of Rs. 150000 to Bhaskar on 01.02.04. Ashok draws the bill on 10.02.04 and Bhaskar accepted it on same date. Ashok discounted the bill for Rs. 146000 on 05.03.04. Due date is 15.04.04. On due date Bhaskar paid Rs. 150000 to Bank and bill was honoured.
Bills Receivable Endorsed + Honoured:
5. On 1st Oct, 1993, P sold goods of Rs.30, 000/- to Q. Q accepted the bill of Rs. 30,000 on 15th October, 1993. But P was liable to pay Rs. 40,000/- to Z. Thus on 15th Nov, 1993 P endorsed the bill Z in full Settlement. On 20th December, 1993 i.e. on due date Q honoured the bill.
6. Mr. Mahesh sold goods of Rs.1, 50,000 to Rohit on 5th March, 03. Rohit accepted the bill on 21st March 2003. Mahesh was liable to pay Rs.1, 50,000/- to Jacky. So Mahesh endorsed the bill to Jacky on 15thApril 2003. 15th May 2003 is the due date. On this date Rohit realised the bill amount.
Bill kept by drawer but dishonoured:
7. Meghna draws a bill of Rs.7, 000 on Sarika. Sarika accepted it. On due date Sarika failed to pay the bill amount. So, bill gets dishonoured. Sarika accepted new bill for Rs.7000 & properly honoured.
8. Ashwin sold goods of Rs.11, 500 to Amol. Amol accepted it. On due date Amol failed to pay the bill amount. So Amol accepted new bill for Rs.11, 500 & on due date properly honoured it.
Bill Discounted but Dishonoured:
Calculation of Discount: Interest Months
Bill amount X ------X------
100 12
- Bill amount Rs. 1, 00,000, Discounted at 12% for 3 months.
Discount = 12 3
100000 X---- X ---= 3000.
100 12
- Bill amount Rs. 50,000, discounted at 18% for 6 months.
Discount = 18 6
50000 X---- X ---= 4500.
100 12
- Bill amount Rs. 1, 00,000, discounted at 24% for 6 months.
Discount = 24 6
100000 X---- X ---= 12000.
100 12
9. Pravin draws bill of Rs. 1, 00,000 on Shrikant on 1.10.04. Shrikant accepted on same date for 3 months. On same date i.e. on 1.10.04, Pravin discounted the bill at 15%. On due date, Shrikant failed to pay the amount. Thus 1st bill dishonoured. On the same date Shrikant accepted new bill for Rs. 50,000 for 2 months. 2nd bill properly paid by Shrikant.
Bill Endorsed but Dishonoured
10. Ram sold goods of Rs. 30,000 to Hari on 1.7.06. On 5.7.2006, Hari accepted bill of Rs.30, 000 for 3 months. On 8.7.2006, Ram endorsed the bill to Ravi in full settlement of Rs.32, 000. On due date bill dishonoured. Hari accepted new bill for 2 months & properly honoured.
11. Sham, draws bill of Rs. 55,000 on Mr. Rohit on 1.1.05, Rohit accepted the bill for Rs. 55,000 for 2 months. On 5.1.05, Sham endorsed the bill to Ritesh in full settlement of Rs. 58,000/-. On due date bill dishonoured. Rohit accepted new bill for 3 months & properly honoured.
Interest on Dishonour of Bill
12. 1.1.06. Raj sold goods of Rs. 20,000 to Anil.
4.1.06. Anil accepted bill for Rs. 20,000 for 2 months.
7.3.06. Anil failed to pay the bill thus it is dishonoured.
10.3.06. Anil accepted new bill for Rs.25, 000 for 1 month.
13.4.06. Anil honoured the bill properly.
Bill discounted – dishonoured – Interest- New bill honoured.
13. X sold goods of Rs.50, 000 on 1.1.06.
10.1.06 Y accepted the bill for 3 months.
15.1.06 X discounted the bill for Rs. 45,000.
13.4.06 Y failed to pay the bill amount thus the bill is dishonoured.
15.4.06 Y accepted new bill for Rs.52, 000 for 1 month.
18.5.06 Y paid the bill amount properly.
14. P sold goods of Rs.30, 000 on 1.1.05 to Q. On 5.1.05 Q accepted the bill for 2 months. On 10.1.05. P discounted the bill for Rs.25, 000. 8.3.05 Q failed to pay the bill amount, so bill dishonoured. On 15.3.05 Q accepted new bill for Rs. 33,000 for 2 months. On due date bill properly honoured.
Bill Endorsed + Dishonoured + Interest.
15. Viraj sold goods of Rs.10, 000 on 1.1.06 to Sujay. Sugary accepted the bill for 3 months on same date. On 5.1.06, Vijay endorsed the bill to Suresh in full settlement of Rs. 12,000. On due date, Sujay dishonoured the bill. He accepted new bill for Rs. 14,000 for 1 month. Honoured the bill on due date by Sujay.
16. Minal draws a bill on Usha for Rs. 5,000 at 3 months; Usha accepts the bill & returns it to Minal. Minal discounts the bill @ 12% p.a. with bank. On due date Usha unable to pay the bill. Usha requests Minal to renew bill. Minal accepts the proposal on the condition that Usha should pay Rs.2000 cash & accept a new bill with 10% interest for 1 month. On due date Usha pay the bill for Rs.3, 015.
Pass entries in the books of Minal.
Bill kept + Dishonoured + Noting Charges
17. 1.1.05 X sold goods to Y for Rs. 20,000.
1.4.05 Y accepted bill for Rs.20, 000 for 3 months.
4.7.05 Bill dishonoured – X paid noting charges Rs.2, 000.
10.7.05 Y accepted new bill for Rs. 22,000 for 1 month.
13.8.05 Bill honoured by Y.
Bill Discounting + Dishonoured + Noting Charges
18. Ram sold goods of Rs.1, 000 to Sham on 1.4.06, Sham accepted bill on 5.4.06 for 1 month. 5.4.06 Ram discounted bill for Rs.9, 50. On 8.5.06 bill dishonoured. Bank paid noting charges Rs. 100. Sham paid noting charges in cash to Ram & accepted new bill for balance for 2 months. On due date bill honored.
Bill Endorsed + Dishonoured + Noting Charges
19. On 10/2/04 Sunil sold goods to Pundit for Rs.55, 000. On 15/2/04 Pundit accepted the bill for Rs.20, 000 for 2 months. On 18/4/04 bill dishonoured. Sunil paid noting charges Rs.150. On 25/4/04 Pundit accepted new bill for Rs.20, 150 for 1 month. On due date bill honoured.
20. Mahindra sold goods to Ravindra for Rs.11, 000 on 01/10/02. On 05/10/02 Ravindra accepted bill for Rs.11, 000 for 1 month. On 6/10/02 Ravindra discounted the bill for Rs.10, 000. On 08/11/02 bill dishonoured. Bank paid noting charges Rs.90. Ravindra paid noting charges in cash to Mahindra & accepted new bill for Rs.11,000/- and properly honoured.
22. Soham sold goods of Rs.25, 000/- to Aryan on 10/04/03. On 15/04/03 Aryan accepted the bill for Rs.25, 000 for 2 months. Soham endorsed the bill to Ishan against Rs. 27,000/-. On due date bill dishonoured. Ishan paid noting charges Rs.200/-. Aryan accepted new bill for total amount on 22/03/03.
23. Journalise the following transaction in the books of Kailash.
(a)Sandeep informs Kailash that Vilas’s acceptance Rs.8, 000 endorsed to Sandeep has been dishonoured. Noting charges amounted to Rs.200.
(b)Kalpana renews her acceptance to Kailash for Rs.7, 500 by paying Rs.3, 500 in cash & accepting a fresh bill for the balance plus interest at 10% p.a. for 3 months.
(c)Uma retired her acceptance to Kailash for Rs.3, 000 by paying Rs.2, 900 in cash.
(d)Kailash sent a bill of Anita for Rs.6, 000 to bank for collection but bank informed that the bills has been dishonoured.
24. Journalise the following transactions in the books of Rahul.
(e)Pradeep informed Rahul, that Vijay’s acceptance for Rs.1, 000 endorsed to Pradeep has been dishonoured. Noting Charges amounted Rs.50.
(f)Nilesh renews his acceptance to Rahul for Rs.600 by paying Rs.200 in cash & accepting a fresh bill for balance plus interest at 12% p.a. for 3 months.
(g)Prashant’s acceptance to Rahul for Rs.3, 000 retired one month before due date at a discount of 12% p.a.
(h)Bank informs Rahul at to dishonour of Aviraj’s acceptance for Rs.1000 to Rahul discounted with the bank. Noting charges are Rs.20/-.
25. Wagh bought goods from Landge for Rs.12, 000. On the same date Wagh accepted 3 months bill which Landge endorsed to Kolhe. On the due date Kolhe informed Landge that the bill was dishonoured & Rs.50 was paid for noting charges. Landge then drew a new bill on Wagh including noting charges & interest Rs.350. Before the due date, Wagh becomes insolvent & only Rs.3, 000 was recovered from his private estate as first & final dividend. Give journal entries in the books of Wagh.
26.Prashant drew a bill on Rohit worth Rs.8, 000 for 3 months, which was accepted by Rohit. On the same date Prashant discounted the bill with his bank @ 10% p.a. On due date Rohit dishonoured his acceptance. Rohit paid Rs.4000 to Prashant & accepted a fresh bill for two months for balance including interest of Rs.40.
Rohit became insolvent before the due date of the bill & 50 paise in a rupee were received as first & final dividend from his estate. Pass journal entries in the books of Prashant.
27. Usha purchased goods from Shobha on credit for Rs.5000 & accepted a bill drawn by Shobha for 4 months. Before the due date, Usha approached Shobha with a request to renew the bill. Shobha agreed but with the condition that Usha should pay Rs.3000 with interest of Rs.60 accept a new bill for the balance due. These arrangements were duly carried through. The new bill was met on due date. Pass journal entries in the books of Shobha.
28. Mr. Amol draws a bill on Mr. Atul for Rs.14, 000 at 3 months. Atul accepts the bill. The bill is sent to bank for collection on maturity. Atul finds him unable to make payment of the bill & requests Amol to renew it. Amol accepts the proposal on the condition that Atul should pay Rs.7000 in cash along with interest of Rs.100 & accept a new bill at one month for the balance. These arrangements were carried through. Afterwards Atul retired the bill by paying Rs.6950/-. Give journal entries & Atul’s A/c in the books of Amol.