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Bills of Exchange Questions for Practice Solutions
- Q1: Name any two types of commonly used negotiable instruments.
- Q1: On Jan 01, 2016 Rao sold goods `10,000 to Reddy. Half of the payment was made immediately and for the remaining half Rao drew a bill of exchange upon Reddy payable after 30 days. Reddy accepted the bill and returned it to Rao. On the due date Rao presented the bill to Reddy and received the payment. Journalise the above transactions in the books Rao and prepare of Rao’s account in the books of Reddy.
- Q1: A bill of exchange must contain “an unconditional promise to pay” Do you agree with a statement?
- Q2: Write two points of distinction between bills of exchange and promissory note.
- Q2: On Jan 01, 2016, Shankar purchased goods from Parvati for ` 8,000 and immediately drew a promissory note in favour of Parvati payable after 3 months. On the date of maturity of the promissory note, the Government of India declared holiday under the Negotiable Instrument Act 1881. Since, Parvati was unaware about the provision of the law regarding the date of maturity of the bill, she handed over the bill to her lawyer, who duly presented the bill and received the payment. The amount of the bill was handed over by the lawyer to Parvati immediately. Recore the necessary Journal entries in the books of Parvati and Shankar.
- Q2: Briefly explain the effects of dishonour and noting of a bill of exchange.
- Q3: State any four essential features of bill of exchange.
- Q3: Vishal sold goods for `7,000 to Manju on Jan 05, 2016 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.
- Q3: Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example.
- Q4: State the three parties involved in a bill of exchange.
- Q4: On Feb 01, 2016, John purchased goods for `15,000 from Jimmi. He immediately made a payment of `5,000 by cheque and for the balance accepted the bill of exchange drawn upon him by Jimmi. The bill of exchange was payable after 40 days. Five days before the maturity of the bill, Jimmi sent the same to his bank for collection. The bank duly presented the bill to John on the due date who met the bill. The bank informed the same to Jimmi. Prepare John’s account in the books of Jimmi and Jimmi account in the books of John.
- Q4: Distinguish between bill of exchange and promissory note.
- Q5: On Jan 15, 2015, Kartar Sold goods for `30,000 to Bhagwan and drew upon him three bills of exchanges of ` 10,000 each payable after one month, two month, and three months respectively. The first bill was retained by Kartar till its maturity. The second bill was endorsed by him in favour of his creditor Ratna and the third bill was discounted by him immediately @ \(6\%\) p.a. All the bills were met by Bhagwan. Journalise the above transactions in the books of Kartar and Bhagwan. Also prepare ledger accounts in books of Kartar and Bhagwan.
- Q5: Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.
- Q5: What is meant by maturity of a bill of exchange?
- Q6: Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book.
- Q6: What is meant by dishonour of a bill of exchange?
- Q6: On Jan. 01, 2016 Arun sold goods for `30,000 to Sunil. \(50\%\) of the payment was made immediately by Sunil on which Arun allowed a cash discount of \(2\%\). For the balance Sunil drew a promissory note in favour of Arun payable after 20 days. Since, the date of maturity of bill was a public holiday, Arun presented the bill on a day, as per the provisions of Negotiable Instrument Act which was met by Sunil. State the date on which the bill was presented by Arun for payment and Jounalise the above transactions in the books of Arun and Sunil.
- Q7: Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger?
- Q7: Name the parties to a promissory note
- Q7(a): Darshan sold goods for ` 40,000 to Varun on 8.1.2016 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.
- Q7(b): Darshan sold goods for ` 40,000 to Varun on 8.1.2016 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 Darshan immediately discounted the bill @ \(6\%\) p.a. with his bank.
- Q7(c): Darshan sold goods for ` 40,000 to Varun on 8.1.2016 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 endorsed immediately by Darshan in favour of his creditor Suresh.
- Q7(d): Darshan sold goods for ` 40,000 to Varun on 8.1.2016 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 three days before its maturity, the bill was sent by Darshan to his bank for collection.
- Q8: What is meant by acceptance of a bill of exchange?
- Q8: Bansal Traders allow a trade discount of \(10\%\) on the list price of the goods purchased from them. Mohan traders, who runs a retail shop made the following purchases from Bansal Traders. Date Amount (`) Dec. 21, 2016 1,000 Dec. 26, 2016 1,200 Dec. 18, 2016 2,000 Dec. 31, 2016 5,000 For all the purchases Mohan Traders drew promissory note in favour of Bansal Traders payable after 30 days. The promissory note for the sale of Dec. 21, 2016 was retained by Bansal Traders with them till the date of its maturity. The promissory note drawn on 26.12.2016 was discounted by Bansal Traders from their bank at \(12\%\) p.a. The promissory note drawn on Dec. 28, 2016 was endorsed by Bansal Traders in favour of their creditor Dream Soaps in full settlement of a purchase amounting to ` 1,900. On 25.1.2017 Bansal Traders sent the promissory note drawn on Dec. 31, 2016 to their bank for collection. All the promissory notes were met by Mohan Traders. Record the necessary journal entries for the above transactions in the books of Bansal Traders and Mohan Traders and prepare Mohan Traders account in the books of Bansal Traders and Bansal Traders account in the books of Mohan Traders.
- Q9: What is Noting of a bill of exchange.
- Q9(a): Narayanan purchased goods for `25,000 from Ravinderan on Feb. 01, 2016. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Record the necessary journal entries in the books of Ravinderan and Narayanan in following cases: When the bill was retained by Ravinderan with him till the date of its maturity.
- Q9(b): Narayanan purchased goods for `25,000 from Ravinderan on Feb. 01, 2016. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Record the necessary journal entries in the books of Ravinderan and Narayanan in following cases: When the bill was discounted by Ravinderan immediately with his bank @ \(6\%\) p.a.
- Q9(c): Narayanan purchased goods for `25,000 from Ravinderan on Feb. 01, 2016. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Record the necessary journal entries in the books of Ravinderan and Narayanan in following cases: When the bill was endorsed to his creditor Ganeshan.
- Q9(d): Narayanan purchased goods for `25,000 from Ravinderan on Feb. 01, 2016. Ravinderan drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Record the necessary journal entries in the books of Ravinderan and Narayanan in following cases: When the bill was sent by Ravinderan to his bank for collection a few days before it maturity.
- Q10: What is meant by renewal of a bill of exchange?
- Q10: Ravi sold goods for ` 40,000 to Sudershan on Feb 13, 2016. He drew four bills of exchange upon Sudershan. The first bill was for `5,000 payable after one month. The second bill was for ` 10,000 payable after 40 days; the third bill was for ` 12,000 payable after three months and fourth bill was for the balance amount payable after 19 days. Sudershan accepted all the bills and returned the same to Ravi. Ravi discounted the first bill with his bank at \(6\%\) p.a. He endorsed the second bill to his creditor Mustaq for the full settlement of a debt of ` 10,200. The third bill was kept by Ravi with him till the date of maturity. Five days before the maturity of the fourth bill, Ravi sent the bill to his bank for collection. All the four bills were dishounoured by Sudarshan on maturity. Sudershan settled Ravi’s claim in cash three days after the dishonour of each bill along with interest @ \(12\%\) p.a. for the terms of the bills. You are requested to record the necessary journal entries in the books to Ravi, Sudershan, Mustaq and bank for the above transaction. Also prepare Sudershan’s account and Mustaq’s account in the books of Ravi.
- Q11: Give the performa of a Bills Receivable Book.
- Q11: On Jan 01, 2016 Neha sold goods for `20,000 to Muskan and drew upon her a bill of exchange payable after two months. One month before the maturity of the bill Muskan approached Neha to accept the payment against the bill at a rebate @ \(12\%\) p.a. Neha agreed to the request of Muskan and Muskan retired the bill under the agreed rate of rebate. Journalise the above transaction in the books of Neha and Muskan.
- Q12: Give the performa of a Bills Payable Book.
- Q12: On Jan 15, 2016 Raghu sold goods worth ` 35,000 to Devendra and drew upto the latter three bills of exchanges. The first bill was for ` 5,000 payable after one month, the second bill was for `20,000 payable after three months and third bill for balance amount for 4 months. Raghu endorsed the first bill in favour of his creditor Dewan in full settlement of a debt of `5,200. The second bill was discounted by Raghu @ \(6\%\) p.a. and the third bill was retained by Raghu till the date of maturity. Devendra dishonoured the bill on maturity and the bank paid ` 30 as noting charges. Four days before the maturity of the third bill Raghu, sent the same for collection to his bank. The third bill was also dishonored by Devendra and the bank paid `200 as noting charges. Five days after the dishonour of the bill Devendra paid the entire amount due to Raghu along with interest `1,000 for this purpose Devendra obtained a short term loan from his bank. You are requested to record the necessary journal entries in the books of Raghu Devendra and Dewan and also prepare Devendra’s account in Raghu’s books and Raghu’s account in Devendra’s account.
- Q13: What is retirement of a bill of exchange?
- Q13(a): Viaml purchased goods ` 25,000 from Kamal on Jan 15, 2016 and accepted a bill of exchange drawn upon him by Kamal payable after two months. On the date of the maturity the bill was duly presented for payment. Vimal dishonoured the bill. record the necessary journal entries in the books of Kamal and Vimal when. The bill was retained by Kamal till the date of its maturity.
- Q13(b): Viaml purchased goods ` 25,000 from Kamal on Jan 15, 2016 and accepted a bill of exchange drawn upon him by Kamal payable after two months. On the date of the maturity the bill was duly presented for payment. Vimal dishonoured the bill. record the necessary journal entries in the books of Kamal and Vimal when. The bill was immediately discounted by Kamal with his bank @ \(6\%\) p.a.
- Q13(c): Viaml purchased goods ` 25,000 from Kamal on Jan 15, 2016 and accepted a bill of exchange drawn upon him by Kamal payable after two months. On the date of the maturity the bill was duly presented for payment. Vimal dishonoured the bill. record the necessary journal entries in the books of Kamal and Vimal when. The bill was endorsed by Kamal in favour of his creditor Sharad.
- Q13(d): Viaml purchased goods ` 25,000 from Kamal on Jan 15, 2016 and accepted a bill of exchange drawn upon him by Kamal payable after two months. On the date of the maturity the bill was duly presented for payment. Vimal dishonoured the bill. record the necessary journal entries in the books of Kamal and Vimal when. Five days before its maturity the bill was sent by Kamal to his bank for collection.
- Q14: Give the meaning of rebate.
- Q14: Abdulla sold goods to Tahir on Jan 17, 2017 for ` 18,000. He drew a bill of exchange for the same amount on Tahir for 45 days. On the same date Tahir accepted the bill and returned it to Abdulla. On the due date Abdulla presented the bill to Tahir which was dishonoured. Abdulla paid `40 as noting charges. Five days after the dishonour of his acceptance Tahir settled his debt by making a payment of `18,700 including interest and noting charges. Record the necessary journal entries in the books of Abdulla and Tahir. Also prepare Tahir’s account in the books of Abdulla and Abdulla’s account in the books of Tahir.
- Q15: Give the performa of a Bill of Exchange.
- Q15: Asha sold goods worth `19,000 to Nisha on March 02, 2017. `4,000 were paid by Nisha immediately and for the balance she accepted a bill of exchange drawn upon her by Asha payable after three months. Asha discounted the bill immediately with her bank. On the due date Nisha dishonoured the bill and the bank paid `30 as noting charges. Record the necessary journal entries in the books of Asha and Nisha.
- Q16: On Feb. 02, 2017, Verma purchased from Sharma goods for `17,500. Verma paid `2,500 immediately and for the balance gave a promissory note to Sharma payable after 60 days. Sharma immediately endorsed the promissory note in favour of his creditor. Gupta for the full settlement of a debt of ` 15,400. On the due date of the bill Gupta presented the bill to Verma which the latter dishonoured and Gupta paid `5,000 noting charges. On the same date Gupta informed Sharma about the dishonour of the bill. Sharma settled his debt to Gupta by cheque for ` 15,500 which includes noting charges and interest. Verma settled Sharma’s claim by cheque for the same amount. Record the necessary journal entries is the books of Sharma, Gupta and Verma for the above transaction and prepare Verma’s and Gupta’s accounts in the books of Sharma. Sharma’s account in the books of Verma. And also Sharma’s account in the books of Gupta.
- Q17: Lilly sold goods to Methew on 1.3.2017 for ` 12,000 and drew upon Methew a bill of exchange for the same amount payable after two months. Lilly immediately discounted the bill with her bank at \(9\%\) p.a. The maturity date of the bill was a non business day (holiday), therefore, Lilly had to present the bill as per the provisions of the Indian Instruments Act.1881. The bill was dishonoured by Methew and Lilly paid ` 45 as noting charges. Methew settled the claim of Lilly five days after the disonour of the bill by a cheque, whch includes interest @ \(12\%\) for the term of the bill. Journalise the above transactions in the books of Lilly and Methew and prepare Mathew’s account in the books of Lilly and Lilly’s account in the books of Mathew.
- Q18: Kapil purchased goods for ` 21,000 from Gaurav on 1.2.2017 and accepted a bill of exchange drawn by Gaurav for the same amount. The bill was payable after one month. On 25.2.2017 Gaurav sent the bill to his bank for collection. The bill was duly presented by the bank. Kapil dishonoured the bill and the bank paid `100 as noting charges. Record the necessary journal entries for the above transactions in the books of Kapil and Gourav.
- Q19: On Feb. 14, 2017 Rashmi sold good `7,500 to Alka. Alka paid `500 in cash and for the bank balance accepted a bill of exchange drawn upon her by Rashmi payable after two months. On Apr.10, 2017 Alka approached Rashmi to cancel the bill since she was short of funds. She further requested Rashmi to accept `2,000 in cash and draw a new bill for the balance including interest ` 500. Rashmi accepted Alka’s request and drew a new bill for the amount due payable after 2 months. The bill was accepted by Alka. The new bill was duly met by Alka on maturity. Record the necessary journal entries in the books of Rashmi and Alka and prepared Alka’s account in the books of Rashmi’s and Rashmi’s account in the books of Alka’s
- Q20: Nikhil sold goods for `23,000 to Akhil on Dec. 01, 2017. He drew upon Akhil a bill of exchange for the same amount payable after 2 months. Akhil accepted the bill and sent it back to Nikhil. Nikhil discounted the bill immediately with his bank @\(12\%\) p.a. On the due date Akhil dishonoured the bill of exchange and the bank paid `100 as noting charges. Akhil requested Nikhil to draw a new bill upon him with interest @\(10\%\) p.a. which he agreed. The new bill was payable after two months. A week before the maturity of the second bill Akhil requested Nikhil to cancel the second bill. He further requested to accept `10,000 in cash immediately and drew a third bill upon him including interest of `500. Nikhil agreed to Akhil’s request. The third bill was payable after one month. Akhil met the third bill on its maturity. record the necessary journal entries in the books of Nikhil and Akhil and also prepare Akhil’s account in the books of Nikhil and Nikhil’s account in the books of Akhil.
- Q21: On Jan 01, 2017 Vibha sold goods worth `18,000 to Sudha and drew upon the latter a bill of exchange for the same amount payable after two months. Sudha accepted Vibha’s draft and returned the same to Vibha after acceptance. Vibha endorsed the bill immediately in favour of her creditor Geeta. Five days before the maturity of the bill Sudha requested Vibha to cancel the bill since she was short of funds. She further requested to draw a new bill upon her including interest of ` 200. Vibha accepted Sudha’s request. Vibha took the bill from Geeta by making the payment to her in cash and cancelled the same. Then she drew a new bill upon Sudha as agreed. The new bill was payable after one month. The new bill was duly met by Sudha on maturity. Record the necessary journal entries in the books of Vibha.
- Q23: On Jan. 01, 2017 Harsh accepted a months bill for ` 10,000 drawn on him by tanu for latter’s benefit. Tanu discounted the bill on same day @ \(8\%\) p.a On the due date tanu sent a cheque to Harsh for honour the bill. Harsh duly honoured his acceptance. Record the journal entries in the Books of Tanu and Harsh.
Chapters in CBSE - Class 11 Accountancy
- Unit 1-Financial Accounting(Part A)Theoretical Framework
- Introduction to Accounting
- Theory Base of Accounting
- Recording of Transactions – I
- Recording of Transactions – II
- Bank Reconciliation Statement
- Trial Balance and Rectification of Errors
- Depreciation, Provisions and Reserves
- Financial Statements – I
- Financial Statements – II
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