Bharat owed - 50,000 to Katen. On 1 st October, 2023, Bharat accepted a bill drawn by Katen for the amount at 3 months. Katen got the bill…

CA Foundation · Accounting · MTP · June 2024
Bharat owed - 50,000 to Katen. On 1 st October, 2023, Bharat accepted a bill drawn by Katen for the amount at 3 months. Katen got the bill discounted with his bank for 49,500 on 3 rd October, 2023. Before the due date, Bharat approached Katen for renewal of the bill. Katen agreed on the conditions that - 25,000 be paid immediately together with interest on the remaining amount at 12% per annum for 3 months and for the balance, Bharat should accept a new bill at three months. These arrangements were carried out. But afterwards, Bharat became insolvent and 40% of the amount could be recovered from his estate. Pass journal entries in the books of Katen.

Suggested Answer and Working Notes:

In the books of Katen Journal Entries Particulars Dr. (₹) Cr. (₹) Bills Receivable A/c Dr. 50,000 To Bharat A/c 50,000 (Being a 3 month’s bill drawn on Bharat for the amount due) Bank A/c Dr. 49,500 Discount A/c Dr. 500 To Bills Receivable A/c 50,000 (Being the bill discounted) Bharat A/c Dr. 50,000 To Bank A/c 50,000 (Being the bill cancelled up due to Bharat’s inability to pay it) Bharat A/c Dr. 750 To Interest A/c 750 (Being the interest due on 25,000 @ 12% for 3 months) Bank A/c Dr. 25,750 To Bharat A/c 25,750 (Being the receipt of a portion of the amount due on the bill together with interest) Bills Receivable A/c Dr. 25,000 To Bharat A/c 25,000 (Being the new bill drawn for the balance) Bharat A/c Dr. 25,000 To Bills Receivable A/c 25,000 (Being the dishonour of the bill due to Bharat’s insolvency) Bank A/c Dr. 10,000 Bad Debts A/c Dr. 15,000 To Bharat A/c 25,000 (Being the receipt of 40% of the amount due on the bill from Bharat’s estate)

Topics: Bills of Exchange and Promissory Notes

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