Page 130 - DEBK-XI(2020)

Accounting for Bills of Exchange 16.11

7. 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.

Solution: In the Books of Z
JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
2016
June 1 Bills Reveivable A/c ...Dr. 60,000
To K 60,000
(Being the acceptance received of the two bills of ` 40,000 and
` 20,000 drawn on K for 2 and 3 months respectively)
June 1 R ...Dr. 42,000
To Bills Receivable A/c 40,000
To Discount Received A/c 2,000
(Being the bill for ` 40,000 endorsed in favour of R in full settlement
of a debt of ` 42,000)
June 4 Bank A/c ...Dr. 19,250
Discounting Charges A/c ...Dr. 750
To Bills Receivable A/c 20,000
(Being the bill for ` 20,000 discounted @ 15% p.a.)
Aug. 4 K ...Dr. 40,600
Discount Received A/c ...Dr. 2,000
To R 42,600
(Being the bill for ` 40,000 dishonoured at maturity—noting charges ` 600)
Sept. 4 K ...Dr. 20,600
To Bank A/c 20,600
(Being the bill for ` 20,000 dishonoured at maturity—noting charges ` 600)
Sept. 5 K ...Dr. 3,363
To Interest A/c (Note) 3,363
(Being the interest charged for the extended period)
Sept. 5 Bills Receivable A/c ...Dr. 64,563
To K 64,563
(Being a new bill drawn for the balance plus interest duly accepted by K)
Dec. 8 K ...Dr. 64,563
To Bills Receivable A/c 64,563
(Being the bill dishonoured at maturity)
Bank A/c ...Dr. 19,369
Bad Debts A/c ...Dr. 45,194
To K 64,563
(Being a final dividend of 30% received in full settlement)