NCERT Solutions Class 11 Accountancy Chapter 8

Q.1 Name any two types of commonly used negotiable instruments.

Ans.

Commonly used negotiable instruments are:

• Cheque.
• Bill of exchange.

Q.2 Write two points of distinction between bills of exchange and promissory note.

Ans.

Q.3 State any four essential features of bill of exchange.

Ans.

Features of bill of exchange:

• A bill of exchange must be in writing.
• It is an order to make payment.
• It is drawn and signed by the maker, i.e., drawer of the bill.
• It is an unconditional order to a person, i.e., drawee to pay the specified amount. The drawee must accept it to make it a valuable document.
• The date on which payment is made must also be certain.

Q.4 State the three parties involved in a bill of exchange.

Ans.

There are three parties to a bill of exchange:

Drawer: Drawer is the maker of the bill of exchange. A seller/creditor that is entitled to receive money from the debtor can draw a bill of exchange upon the buyer/debtor.

Drawee: Drawee is the person on whom bill of exchange is drawn. Drawee is the purchaser or debtor of the goods upon whom the bill of exchange is drawn.

Payee: payee is the person to whom the payment is to be made. Payee may be the drawer himself or a third person.

Q.5 What is meant by maturity of a bill of exchange?

Ans.

Maturity of a bill of exchange refers to the date on which the instrument becomes due for payment.

Q.6 What is meant by dishonour of a bill of exchange?

Ans.

Dishonour of bill of exchange means that the acceptance is not paid on maturity. It means the drawee fails to make the payment on the date of maturity.

Q.7 Name the parties to a promissory note.

Ans.

There are two parties to a promissory note.

Maker of Drawer: Maker or Drawer is the person who makes or draws the promissory note to pay a certain amount as specified in the promissory note. He/she is also called the promise.

Drawee or payee: Drawee or Payee is the person in whose favour the promissory note is drawn. Also called Promise.

Q.8 What is meant by acceptance of a bill of exchange?

Ans.

Acceptance of a bill of exchange refers to the drawee accepts the bill prepared by the drawer. He/she acknowledges the payment of debt.

Q.9 What is noting of a bill of exchange?

Ans.

Noting of a bill means getting the bill notified and protested on its dishonour with the Notary Public.

Q.10 What is meant by renewal of a bill of exchange?

Ans.

Renewal of a bill of exchange refers to substituting the old bill with a new bill.

When the acceptor of a bill is not in a position to meet the bill on its due date, he/she may with the consent of the holder accept a fresh bill in place of the old bill after cancelling the old bill is called renewal of a bill.

Q.11 Give the performa of a Bills Receivable book.

Ans.

Specimen of a Bills Receivable book:

Q.12 Give the performa of a Bills Payable Book.

Ans.

Specimen of a Bills Payable Book:

Q.13 What is retirement of a bill of exchange?

Ans.

If the drawee or the acceptor wishes to pay the amount of the bill before the date of maturity is called Retirement of a bill of exchange. In such a case, the drawer may allow him a concession called Rebate or Discount at certain rate calculated on the unexpired period of maturity of the bill.

Q.14 Give the meaning of rebate.

Ans.

Rebate is a discount allowed by the drawer to the drawee when he accepts the payments of the bill before its due date.

Q.15 Give the performa of a bill of exchange.

Ans.

Here, Samira is the drawer and Swati is the Drawee. Since Swati has accepted the bill, she is the acceptor.

Q.16 A bill of exchange must contain “an unconditional promise to pay”. Do you agree with a statement?

Ans.

According to the Negotiable Instruments Act 1881, a bill of exchange is defined as 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.

Features of a bill of exchange:

• A bill of exchange must be in writing.
• It is an order to make payment.
• The order to make payment is unconditional.
• The maker of the bill of exchange must sign it.
• The payment to be made must be certain.
• The date on which payment is made must also be certain.
• The bill of exchange must be payable to a certain person.
• The amount mentioned in the bill of exchange is payable either on demand or on the expiry of a fixed period of time.
• It must be stamped as per the requirement of law.

Q.17 Briefly explain the effects of dishonour and noting of a bill of exchange.

Ans.

Dishonour of a Bill means a situation when the acceptor of the bill refuses or is unable to pay the amount. In such a case, the holder of the bill can recover the amount from the Drawer or any of the previous endorsers. The holder of the bill may present the bill through a Notary Public and get the dishonour of the bill noted.

Noting will consist of the following:

• Date, fact and reasons of dishonour;
• If the bill is not expressly dishonoured, the reasons why he/she treats it as dishonoured and
• The amount of noting charges.

The entries recorded for noting charges in the drawers book are as follows:

When drawer himself pays:

Where endorsee pays:

When the bank pays on discounted bill:

When the bank pays in the event of sending the bill for collection to the bank:

It may be noted that whosoever pays the noting charges, ultimately these have to be borne by the drawee.

Q.18 Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example.

Ans.

The term maturity refers the date on which a bill of exchange becomes due for payment. In arriving at the maturity date three days, known as days of grace, must be added to the date on which the period of credit expires instrument is payable.

Suppose a bill dated March 05 is payable 30 days after date it, falls due on Apr 07, i.e., 33 days after March 05 if were payable one month after date, the due date would be April 08, i.e., one month and 3 days after March 05.

However where the date of maturity is a public holiday, the instrument will become due on the preceding business day. In this case if April 08, falls on a public holiday then the April 07 will be the maturity date.

But when an emergency holiday is declared under the Negotiable Instrument Act 1881, by the Government of India which may happen to be the date of maturity of a bill of exchange, then it will be next working day.

Procedures:

• Days of grace are not allowed when the bill is payable ‘on demand’ or ‘at sight’.
• When the period of the bill is stated in days, the calculation of the maturity date will be in days (which includes the date of payment but exclude the date of transaction).
• When the period of the bill is in months, calculation of maturity will be in terms of calendar months, ignoring the number of days in a month.
• If the maturity date falls on a day which is a ‘public holiday’ the maturity date of the bill shall be preceding business day.

Q.19 Distinguish between bill of exchange and promissory note.

Ans.

Q.20 Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.

Ans.

When a bill of exchange is to be retired before the due date by mutual understanding between the drawer and the drawee. This happens when the drawee of the bill has funds at his disposal and makes a request to the drawer or holder to accept the payment of the bill before its maturity. If the holder agrees to do so, the bill is said to retired.

The retiring of a bill draws a curtain on the bill transactions before the expiry of its normal term. To encourage the retirement, the holder allows some discount called Rebate on bills for the period between date of retirement and maturity. The rebate is calculated at a certain rate of interest.

Following journal entries are recorded:

In the books of the drawer:

On the retiring the acceptance and rebate allowed:

In the books of Drawee:

Q.21 Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book.

Ans.

Bills Receivable book has been designed as a summary of information regarding a duly accepted bill received by a drawer. All the details of the bill-date, acceptor’s name, amount, term, place of payment, etc., are entered in the bills receivable book.

The Specimen of Bills Receivable Book:

Features:

• The bills receivable book is totaled periodically.
• This total is debited to the ‘Bills Receivable Account’ whereas the account of every individual debtor whom the bills received is credited in the ledger.
• It would always have a debit balance.
• This balance on any date would represent the amount of bills receivable unmatured and on hand.

The question is presently out of syllabus.

Q.22 Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger?

Ans.

Bills Payable Book is maintained like a Bills Receivable book.

It is meant to record all the details, relating to the bills accepted by a person or a party, which are retained for being use in the future, in case of need.

The specimen of Bills Payable book:

The posting from this books are made to the debit of the account of every creditor to whom acceptance has been given and the periodical total of the books is credited to the ‘Bills Payable Account’ in the ledger.

The bills payable account representing the liability of the acceptor in respect of bills accepted by him, always has a credit balance.

Q.23 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.

Ans.

Q.24 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 unware 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. Record the necessary journal entries in the books of Parvati and Shankar.

Ans.

Q.25 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.

Ans.

Working Note:

\begin{array}{l}\text{Calculation of Interest:}\\ \text{= 7,000 x}\frac{\text{12}}{\text{100}}\text{x}\frac{\text{2}}{\text{12}}\text{= 140}\end{array}

Q.26 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 jimmy and jimmy account in the books of John.

Ans.

Q.27 On Jan 15, 2015, Kartar sold goods for 30,000 to Bhagwan and drew upon him three bills of exchange 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.

Ans.

Q.28 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 Journalise the above transactions in the books of Arun and Sunil.

Ans.

Q.29 Darshan sold goods for 40,000 to Varun on 08/01/2016 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.

1. When the bill was retained by Darshan till the date of its maturity.
2. When Darshan immediately discounted the bill @ 6% p.a. with his bank.
3. When the bill was enclosed immediately by Darshan in favour of his creditor Suresh.
4. When three days before its maturity, the bill was sent by Darshan to his bank for collection.

Ans.

When Darshan immediately discounted the bill at the rate of 6% per annum 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:

When the bill was retained by Darshan till the date of its maturity.

When Darshan immediately discounted the bill at the rate of 6% per annum with his bank:

When the bill was endorsed by Darshan immediately of his creditor Suresh.

When three days before its maturity, the bill was sent by Darshan to his bank for collection.

Q.30 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.

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 25/01/2017 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.

Ans.

Q.31 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.

Pass 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.
• When the bill was discounted by Ravinderan immediately with his bank @ 6% p.a.
• When the bill was endorsed to his creditor Ganeshan.
• When the bill was sent by Ravinderan to his bank for collection a few days before it maturity.

Ans.

When the bill was retained by Ravinderan with him till the date of its maturity:

When the bill was discounted with bank at the rate of 6%:

When the bill was endorsed to his creditor Ganeshan.

When the bill was sent by Ravinderan to his bank for collection.

When the bill was retained by Ravinderan with him till the date of it maturity.

When the bill was discounted with the bank at the rate of 6%.

When the bill was endorsed to his creditor Ganeshan.

When the bill was sent by Ravinderan to his bank for collection.

Q.32 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 dishonoured by Sudershan on maturity. Sudershan settled Ravi’s claim in cash three days after the dishonour of each bill along with interest @12% pa. 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.

Ans.

Q.33 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.

Ans.

Q.34 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 the 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 dishonoured 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.

Ans.

Note: In this question, there is no information regarding honour of the first bill of 5,000. Therefore, it has been assumed that the first bill has been met on maturity.

Q.35 Vimal 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.
• The bill was immediately discounted by Kamal with his bank @6% p.a.
• The bill was endorsed by Kamal in favour of his creditor shared.
• Five days before its maturity the bill was sent by Kamal to his bank for collection.

Ans.

When the bill was retained by Kamal till the date of its maturity:

When the bill was immediately discounted by Kamal at the rate of 6%: