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Bills of Exchange and Promissory Notes-Part 4/6
CPT Section A Fundamentals of Accountancy Chapter 7 Unit 3
CA. Ajay Lunawat
DISHONOR OF BILL
Dishonour of Bills
The bill will not be paid
The bill becomes useless
The party from whom the bill was received will be liable to pay the amount
And also the expenses incurred by the party.
NOTARY PUBLIC
If there is dishonour, or fear of dishonour, the bill will be given to a public official known as “Notary Public”.
NOTARY PUBLIC – Bill Honoured
Notary Public
NOTARY PUBLIC – Bill Dishonoured
Notary Public
NOTING CHARGES
The fees charged by NOTARY PUBLIC for his service is called NOTING CHARGES
The amount of noting charges is recoverable from the party which is responsible for dishonour.
Question No 1
Which of the following statement is true:
Answer (b)
(a) Noting charge is an expense to be borne by drawer
(b) Noting charge is an expense to be borne by drawee
(c) Noting charge is an expense to be borne by payee
(d) Noting charge is an expense to be borne by bank
Question No 2
Fees paid in cash to Notary Public is charged by:
Answer (c)
a) Drawer
b) Drawee
c) Holder of the bill of exchange
d) None
Question No 3
When the bill are to be produced to notary public?
Answer (c)
a) At the time of drawing the bill
b) At the time of acceptance of the bill
c) At the time of dishonour of the bill
d) At the time of “bill for collection”
Accounting Treatment DISHONOR OF BILL
Accounting for DRAWER
Held Till Maturity - Dishonor
Drawee A/c Dr. To Bills Receivable A/C
Example – Held Till Maturity
Suppose X received from Y a bill for Rs. 1,000. On Maturity the bill is dishonoured and Rs. 10 is paid as noting charges. The entry in this case will be
Y A/c Dr. 1,010 To Bills Receivable A/c 1,000 To Bank A/c (Noting Charges) 10
Accounting for DRAWER Endorsement - Dishonor
Drawee A/c Dr. To Creditor/Endorsee A/c
Example – Endorsement
Suppose X had endorsed this bill in favour of Z. In that case entry for dishonoured bill would have been
Y A/c Dr. 1,010 To Z A/c 1,010
Accounting for DRAWER
Discounting with Bank - Dishonor
Drawee A/c Dr. To Bank A/c
Example – Discounted with Bank
Suppose X has discounted the bill with a bank, the entry for dishonoured bill would have been
Y A/c Dr. 1,010 To Bank A/c 1,010
Question No 5 A bill of Rs. 12,000 was discounted by A with the banker for Rs. 11,880. At maturity, the bill returned dishonoured, noting charges Rs. 20. How much amount will the bank deduct from the bank balance at the time of such dishonour?
Answer (c)
(a) 12,000 (b) 11,880
(c) 12,020 (d) 11,900
Question No 6 X draws a bill on Y for Rs. 20,000 for 3 months on 1.1.2011. The bill is discounted with banker at a charge of Rs. 100. At maturity the bill return dishonoured. In the books of X, for dishonour, the bank account will be credited by
Answer (b)
a) Rs. 19,900 b) Rs. 20,000
c) Rs. 20,100 d) Rs. 19,800
Accounting Treatment In the Books of Drawee
Accounting for DRAWEE
Held Till Maturity - Dishonor
Bills Payable A/c Dr. To Drawer A/c
Accounting for DRAWEE
Endorsement - Dishonour
Bills Payable A/c Dr. To Drawer A/c
Accounting for DRAWEE
Discounting with Bank - Dishonour
Bills Payable A/c Dr. To Drawer A/c
THANK YOU