Answer to Question #138019 in Accounting for vishesh

Question

bills of exchange

K owes ` 60,000 to Z. The debt is discharged by K on 1st June, 2016 by accepting two bills of exchange drawn on him by Z—one for ` 40,000 at 2 months and the other for ` 20,000 at 3 months. The first bill is endorsed in favour of R, a creditor, in full settlement of his debt for ` 42,000. The second bill is discounted with the

bank at 15% p.a. on 4th June. Both the bills were dishonoured, the noting charges in each case being ` 600. On 5th September, K agreed to accept another bill for the total amount including interest @ 18% p.a. payable after 3 months. On the due date the bill was dishonoured. K was declared insolvent and a final dividend@ 30% was realised from his estate.

Show the Journal entries in the books of Z and K.

Answer 1

In the books of Z

JOURNAL

Date Particulars L.F Dr Cr

2016

June 1 Bills receivable A/c 60,000

To K 60,000

(Being acceptance received of the two

bills of 40,000 and 20,000 drawn on K

2 and 3 months respectively)

June 1 R 42,000

To bills receivable A/c 40,000

To Discount received A/c 2,000

(Being the bill of 40,000 endorsed in

favour of R in full settlement of a debt

of 42,000)

June 4 Bank A/c 19,250

Discounting charges 750

To Bills receivable A/c 20,000

(Being the bill of 20,000 discounted @

15% p.a)

Aug 4 K 40,600

Discount receivable A/c 2,000

To R 42,600

(Being the bill for 20,000 dishonored at

maturity -noting charges 600)

Sep 4 K 20,600

To Bank A/c 20,600

(Being the bill of 20,000 dishonoured at

maturity-noting charges 600)

Sep 5 K 3,363

To interest A/c(note) 3,363

(Being the interest charged for extended

period)

Sep 5 Bills receivable A/c 64,563

To K 64,563

(Being a new bill drawn for the balance

plus duty accepted by K)

Dec 8 K 64,563

To Bills Receivable A/c 64,563

(Being the bill dishonoured at maturity)

Bank A/c 19,369

Bad debts A/c 45,194

To K 64,563

(Being a final dividend of 30% received

in full settlement)

In the books of K

JOURNAL

Date Particulars L.F Dr Cr

2016

June 1 Z 60,000

To Bills Payable A/c 60,000

(Being the acceptance given of two bills

of 40,000 and 20,000 from Z respectively

for 2 and 3 months)

Aug 4 Bills payable A/c 40,000

Noting charges A/c 600

To Z 40,600

(Being the bill for 40,000 dishonored

-noting charges 600)

Sep 4 Bills payable A/c 20,000

Noting charges A/c 600

To Z 20,600

(Being the bill of 20,000 dishonored

-noting charges 600)

Sep 5 Interest A/c 3,363

To Z(note) 3,363

(Being the interest payable for the

extended period)

Sep 5 Z 64,563

To Bills payable A/c 64,563

( Being the acceptance of a new

bill for the balance plus interest)

Dec 8 Bills payable A/c 64,563

To Z 64,563

(Being the bill dishonored at maturity)

To Z 64,563

To Bank A/c 19,369

To Deficiency A/c 45,194

(Being a final dividend of 30% paid

in full settlement)