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Account 4 Marks Question

Bills of Exchange · CBSE STD 11 Commerce (CBSE - English Medium). 18 questions.

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18 questions · timed · auto-graded

Question 14 Marks
Explain any three of the following:
  1. Retiring of a bill of exchange.
  2. Discounting of a bill of exchange.
  3. Bill sent to bank for collection.
  4. Noting Charges.
Answer
  1. Retirement of a Bill: When the Drawee pays the bill before its due date It is called Retirement of a Bill. The holders allow him a rebate of certain amount calculated at a certain rate per cent per annum, from the date of retirement to the date of maturity.
  2. Discounting of a Bill: A bill may be presented to a bank and amount received against it. It is known as Discounting of a Bill. The bank deducts its charges (Discounting charges) from the bill amount and disburses the balance amount.
  3. Bill Sent for Collection: A bill received may be retained till the date of maturity. But, it may be deposited with the bank, with instructions that the bill be retained till maturity and realised on its due date. It is known as Bill Sent for Collection.
  4. Noting Charges: Noting Charges is the fee paid to the Notary Public for noting and protesting the Bill of Exchange of its dishonour.
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Question 24 Marks
Give a definition of Bill of Exchange and give its four characteristics.
Answer
"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.” -Section 5 of the Negotiable Instruments Act, 1881.
On the basis of the above definition following are the main characteristics of bill of exchange:
  1. A bill of exchange must be in writing.
  2. It must contain an order (and not a request) to make payment.
  3. The order must be unconditional.
  4. The amount of bill of exchange must be definite.
  5. The date of payment must be a fixed one.
  6. It must be signed by the maker (drawer) of the bill.
  7. It must be signed by the acceptor (drawee).
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Question 34 Marks
Distinguish between an accomodation bill and a trade bill.
Answer
  Basis for Distinction Trade Bills Accommodation Bills
1. Object These bills are drawn against trade transaction of sale and purchase. These bills are drawn for financial assistance.
2. Consideration These bills are drawn against proper consideration. These bills are drawn without consideration.
3. Proof of Dedt These bills are proof of debt. The drawee is a debtor. These bills are not a proof of debt because the drawee is not a debtor.
4. Distribution of the proceeds When these bills are discounted, the full proceeds remain with the drawer. When these bills are discounted, the proceeds may be share by drawer and drawee in pre-determined ratio.
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Question 54 Marks
On 10th January, 2017, A sells goods to B for ₹ 12,000. On that date, B accepted a bill drawn upon him by A at two months for ₹ 12,000. A retains the bill till due date and on due date sends the bill to the Banker for collection. In due course, A receives the information from the Bank that the bill has been duly met.
Pass Journal Entries in the books of A and B.
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Question 64 Marks
On Jan. 1, 2017, Tarun purchased goods from Arun for ₹ 20,000 and immediately drew a promissory note in favour of Arun payable after 1 month. Date of maturity of the promissory note was declared emergency holiday by the Government of India under the Negotiable Instrument Act 1881. Tarun met the promissory note according to the provisions of law.
Pass the necessary Journal entries in the books of Arun and Tarun.
Answer


Note: When due date falls on Emergency holiday (here February 04, 2017), then due date is succeeding date i.e. February 05, 2017.
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Question 74 Marks
Explain in brief the meaning of the following terms:
  1. Endorsement of a bill.
  2. Renewal of a bill.
  3. Dishonour of a Bill.
  4. Date of Maturity.
Answer
  1. Endorsement of Bill: Endorsement means transfer of Bill of Exchange or Promissory Note to another person. The person receiving the Bill of Exchange or Promissory Note becomes authorised to receive the payment. The person who transfers the Bill of Exchange in favour of other person is called endorser. The person to whom the Bill of Exchange is endorsed is called the endorsee.
  2. Renewal of a Bill: When the acceptor of a bill is not in a position to meet the bill on its due date, he may, with the consent of the holder accept a fresh bill in place of the old bill (after cancelling the old bill), it is called Renewal of a Bill.
  3. Dishonour of a Bill: Dishonour means that the bill is not paid by the Drawee on its due date. It arises when the acceptor refuses or is unable to pay the amount of the bill, i.e., Bill of Exchange, Promissory Note or cheque, (say because of insolvency).
  4. Date of Maturity: The date which comes after adding three days to the due date of a bill, is called Date of Maturity.
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Question 84 Marks
Give four differences between a Bill of Exchange and a Promissory Note.
Answer
Differences between a Bill of Exchange and a Promissory Note.
 
Basis
Bill of Exchange
Promissory Note
1.
Drawer
Creditor is the Drawer.
Debtor is the Drawer.
2.
Orther/ Promise
It is an order to pay.
It is a promise to pay.
3.
acceptance
It needs acceptance by the Drawee.
It does not need acceptance by the Drawee.
4.
Parties
It has three paeties namely-Drawer, Drawee and Payee.
It has two parties namely-Promisor and Payee.
5.
Liability
Liability of the drawer arises only if the acceptor does not pay.
Promisor has the primary liability to pay.
6.
Copies
In case of foreign bills, three copies are made but otherwise only one copy is prepared.
Only one copy is prepared whether it is foreign or local.
7.
Stamp
Bill payable on demand need not to be stamped but otherwise stamps would be necessary.
It has to be stamped in any case.
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Question 94 Marks
On 1st January, 2019, Ajay sold goods to Bhushan for ₹ 50,000. Ajay draws a bill of exchange for two months for the amount due which Bhushan accepts and returns it to Ajay. Bhushan met the bill on the due date. Pass Journal entries in the books of Ajay and Bhushan.
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Question 104 Marks
Vishal sold goods for ₹ 70,000 to Manju on Jan. 5, 2019 and drew upon her a bill of exchange payable after 2 months. Manju accepted Vishal's draft and handed over the same to Vishal after acceptance. Vishal immediately discounted the bill with his bank @ 12% p.a. On the due date Manju met her acceptance. Journalise the above transactions in the books of Vishal and Manju.
Answer


Working Note:
Calculation of Discounting Charges,
Discounting Charges $=7,000\times\frac{12}{100}\times\frac{2}{12}=₹\ 140$
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Question 114 Marks
State any two advantages between a bill of exchange and a draft.
Answer
The advantages of Bill of Exchange are:
  1. Facilitates Purchase and Sale of Goods on Credit: It facilitates credit purchase and sale of goods because Bill of Exchange is an unconditional promise to pay.
  2. Serves as a Source of Finance: Bills of Exchange can be discounted with a bank or NBFC so that the enterprise allowing credit can receive the amount immediately without the debtor having to pay before time.
  3. Easy to Recover the Amount: If a Bill of Exchange is dishonoured, it is easier to recover the amount legally than in the case of an ordinary debt.
  4. Endorsement: A Bill of Exchange can be endorsed to other parties; thus it serves almost the same purpose as cash.
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Question 124 Marks
Prepare an imaginary specimen of a promissory note.
Answer
A Promissory Note has two parties namely:
  1. Maker: Maker is the person who makes the promise to pay the amount. It is a person who has availed the credit.
  2. Payee: Payee is the person to whom payment is to be made. It is a person who has granted the credit.

In the example, M/s. Raj & Paul is the maker or a promisor and M/s. Tara Chand & Co. is the payee.
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Question 134 Marks
Darshan sold goods for ₹ 40,000 to Varun on 8.1.2017 and drew upon him a bill of exchange payable after two months. Varun accepted the bill and returned the same to Darshan. On the due date the bill was met by Varun. Record the necessary Journal entries in the books of Darshan and Varun in the following circumstances:
When the bill was retained by Darshan till the date of its maturity.
When Darshan immediately discounted the bill @6% p.a. with his bank.
When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.
When three days before its maturity, the bill was sent by Darshan to his bank for collection.
Answer


Working Note:
Calculation of Discounting Charges,
Discounting Charges $=40,000\times\frac{6}{100}\times\frac{2}{12}=₹\ 400$
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Question 144 Marks
Distinguish between Bills of Exchange and Promissory note on the following basis:
  1. Order or Promise and Parties.
  2. Acceptance.
  3. Parties.
  4. Noting.
Answer
Differences between a Bill of Exchange and a Promissory Note.
 
Basis
Bill of Exchange
Promissory Note
1.
Orther/ Promise
It is an order to pay.
It is a promise to pay.
2.
acceptance
It needs acceptance by the Drawee.
It does not need acceptance by the Drawee.
3.
Parties
It has three paeties namely-Drawer, Drawee and Payee.
It has two parties namely-Promisor and Payee.
4. Noting Noting become very important in the case when the bill of exchange is dishonoured. Nothing is important in the case when the promissory note is dishonoured.
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Question 154 Marks
On 15th February, 2019, X sold goods to Y for ₹ 60,000. On the same day, Y accepted a bill drawn upon him by X for three months for ₹ 60,000. X immediately discounted the bill at 15% p.a. at his bank and Y met the bill on maturity. Make Journal entries in the books of both the parties.
Answer


Working Note:
Calculation of Discounting Charges,
Discounting Charges $=6,000\times\frac{15}{100}\times\frac{3}{12}=₹\ 225$
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Question 164 Marks
On 1st January, 2010, Arun purchased from Barun goods invoiced at ₹ 10,000. On the same date, Barun drew upon Arun a bill for the amount at 2 months and Arun accepted the same. On 4th January, 2010, Barun got the bill discounted with his bank @12% per annum. On due date, Arun told Barun that he was not in a position to pay the full amount and requested Barun to accept ₹ 5,000 in cash and draw a fresh bill at 2 months for the remaining amount plus interest at 15% per annum, Barun agreed. The second bill was duly met on the due date.
Give journal entries to record the above transactions in the books of Barun.
Answer

Working Note:
WN 1: Calculation of Discounting Charges,
Discounting Charges $=10,000\times\frac{12}{100}\times\frac{2}{12}=₹\ 200$
WN 2: Calculation of amount of Interest,
Amount of Interest $=5,000\times\frac{15}{100}\times\frac{2}{12}=₹\ 125$
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Question 174 Marks
B owed ₹ 20,400 to A. On 15th January, 2019, he accepted a bill for ₹ 20,000 for two months drawn by A in full settlement of his debt. On 18th January, 2019, A endorsed the bill to his creditor C. The bill was duly met on the date of maturity. Pass Journal entries in the books of A, B and C.
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Question 184 Marks
Journalise the following in the books of Hari.
Sohan informs Hari that Mohan's acceptance for ₹ 13,000, endorsed in favour of Sohan by Hari, has been dishonoured. Sohan agrees to accept ₹ 3,000 in cash and an acceptance at 3 months together with interest @ 12% per annum.
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