Bills of Exchange and Promissory Notes-Part 5/6
CPT Section A Fundamentals of Accountancy Chapter 7 Unit 3
CA. Ajay Lunawat
ACCOMODATION BILLS BASICS
Accommodation Bills Mr. A was in need of Rs. 3,000
He thought of utilising Bills of Exchange as a mode of financing
Accommodation Bills
Mr. A called his friend Mr. B
Accommodation Bills
Acceptance of Bill
He drew a bill of Rs. 3,000 payable after 1 month on Mr B Mr. B accepted the Bill
Accommodation Bills
Discounting with Bank
He goes to the bank and gets the bill discounted
ACCOMODATION BILLS ACCOUNTING
Accommodation Bills :
Acceptance of Bill
Bills Receivable A/c Dr. 3,000 To Mr. B 3,000
In the Books of Drawer
Mr. A Dr. 3,000 To Bills Payable 3,000
In the Books of Drawee
Accommodation Bills :
Discounting with Bank
Bank A/c Dr. 2,900 Discount A/c Dr. 100 To Bills Receivable 3,000
In the Books of Drawer
No Entry in the books of Drawee
Accommodation Bills
On the Maturity Date
He goes to Mr. B, gives him cash and Mr. B gives the money to the Bank
Accommodation Bills :
On Maturity Date
Mr. B A/c Dr. 3,000 To Cash 3,000
In the Books of Drawer
Cash A/c Dr. 3,000 To Mr. A 3,000 Bills Payable A/c Dr. 3,000 To Bank 3,000
In the Books of Drawee
Accommodation Bills :
If Both Parties Need Money
Draws the Bill
Accepts the Bill
Accommodation Bills : If Both Parties Need Money
Draws the Bill
Accepts the Bill
Bills Receivable A/c Dr. 3,000 To Mr. B 3,000
In the Books of Drawer
Mr. A A/c Dr. 3,000 To Bills Payable 3,000
In the Books of Drawee
Accommodation Bills :
If Both Parties Need Money
Bank A/c Dr. 2900 Discount A/c Dr. 100 To Bills Receivable A/c 3000 Mr. B’s A/c Dr. 1500 To Bank A/c 1450 To Discount A/c 50
In the Books of Drawer
Bank A/c Dr. 1450 Discount A/c Dr. 50 To Mr A’s A/c 1500
In the Books of Drawee
Accommodation Bills :
On Maturity Date
Mr. B A/c Dr. 1500 To Cash 1500
In the Books of Drawer
Cash A/c Dr. 1500 To Mr. A 1500 Bills Payable A/c Dr. 3000 To Bank 3000
In the Books of Drawee
Important Note
Accommodation bill made for both parties
At maturity drawer has not remitted his amount
New bill has been made by other party & discounted with bank
The share of discount to be borne by 1st Drawer will be
(Old Outstanding + New Share received) X Discount
Total discounted amount received
Example Ram draws on Aslam a bill for Rs. 60,000 on 1.4.2011 for 2 months. Aslam accepts the bill and sends it to Ram who gets it discounted for Rs. 58,800. Ram immediately remits Rs. 19,600 to Aslam. On due date, Ram being unable to remit the amount due and accepts a bill for Rs. 84,000 for 2 months which is discounted by Aslam for Rs. 82,200. Aslam sends Rs. 14,800 to Ram out of the same. How much discount will be borne by Ram at the time of 14,800 remittance.
(a) Rs. 1,200 (b) Rs. 1,800 (c) Rs. 1,100 (d) Rs. 800
Solution
Ram’s liability toward’s Aslam at the time of maturity of 1st bill is Rs. 60,000 – Rs. 20,000 = Rs. 40,000
With the fresh bill remitance of Rs. 14,800, total Ram’s liability = Rs. 54,800
Therefore Ram’s share of discount will be Rs. 54,800 / Rs. 82,200 X Rs. 1,800 = Rs. 1,200
Question No 1
The purpose of accommodation bill is:
Answer (c)
(a) To finance actual purchase or sale of goods
(b) To facilitate trade transmission
(c) When both parties are in need of funds
(d) None of the above
Question No 2 A draws a bill on B for Rs. 4,500 for mutual accommodation in the ratio 2:1. A got it discounted at Rs. 4,230 and remitted 1/3rd of the proceeds to B. At the time of maturity, how much amount A should remit to B such that B can pay off bill?
Answer (a)
(a) Rs. 3,000 (b) Rs. 2,880 (c) Rs. 2,920 (d) Rs. 3,010
Question No 3 Lara draws an accommodation bill on Sachin. The proceeds are to be borne between Sachin and Lara in the ratio of 3:1. The amount of bill 6000, discounting charges 120. Discount borne by Sachin will be:
Answer (a)
(a) 90
(b) 120
(c) 100
(d) None
Question No 4 A drew a bill on B for Rs. 50,000 for 3 months. Proceeds are to be shared equally. A got the bill discounted at 12% p.a. and remits required proceeds to B. The amount of such remittance will be:
Answer (a)
a) Rs. 24,250 b) Rs. 25,000
c) Rs. 16,167
d) Rs. 32,333
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