Bills of Exchange and Promissory Notes-Part 4/6

CPT Section A Fundamentals of Accountancy Chapter 7 Unit 3

CA. Ajay Lunawat

DISHONOR OF BILL

Dishonour of Bills

The bill will not be paid

The bill becomes useless

The party from whom the bill was received will be liable to pay the amount

And also the expenses incurred by the party.

NOTARY PUBLIC

If there is dishonour, or fear of dishonour, the bill will be given to a public official known as “Notary Public”.

NOTARY PUBLIC – Bill Honoured

Notary Public

NOTARY PUBLIC – Bill Dishonoured

Notary Public

NOTING CHARGES

The fees charged by NOTARY PUBLIC for his service is called NOTING CHARGES

The amount of noting charges is recoverable from the party which is responsible for dishonour.

Question No 1

Which of the following statement is true:

Answer (b)

(a) Noting charge is an expense to be borne by drawer

(b) Noting charge is an expense to be borne by drawee

(c) Noting charge is an expense to be borne by payee

(d) Noting charge is an expense to be borne by bank

Question No 2

Fees paid in cash to Notary Public is charged by:

Answer (c)

a) Drawer

b) Drawee

c) Holder of the bill of exchange

d) None

Question No 3

When the bill are to be produced to notary public?

Answer (c)

a) At the time of drawing the bill

b) At the time of acceptance of the bill

c) At the time of dishonour of the bill

d) At the time of “bill for collection”

Accounting Treatment DISHONOR OF BILL

Accounting for DRAWER

Held Till Maturity - Dishonor

Drawee A/c Dr. To Bills Receivable A/C

Example – Held Till Maturity

Suppose X received from Y a bill for Rs. 1,000. On Maturity the bill is dishonoured and Rs. 10 is paid as noting charges. The entry in this case will be

Y A/c Dr. 1,010 To Bills Receivable A/c 1,000 To Bank A/c (Noting Charges) 10

Accounting for DRAWER Endorsement - Dishonor

Drawee A/c Dr. To Creditor/Endorsee A/c

Example – Endorsement

Suppose X had endorsed this bill in favour of Z. In that case entry for dishonoured bill would have been

Y A/c Dr. 1,010 To Z A/c 1,010

Accounting for DRAWER

Discounting with Bank - Dishonor

Drawee A/c Dr. To Bank A/c

Example – Discounted with Bank

Suppose X has discounted the bill with a bank, the entry for dishonoured bill would have been

Y A/c Dr. 1,010 To Bank A/c 1,010

Question No 5 A bill of Rs. 12,000 was discounted by A with the banker for Rs. 11,880. At maturity, the bill returned dishonoured, noting charges Rs. 20. How much amount will the bank deduct from the bank balance at the time of such dishonour?

Answer (c)

(a) 12,000 (b) 11,880

(c) 12,020 (d) 11,900

Question No 6 X draws a bill on Y for Rs. 20,000 for 3 months on 1.1.2011. The bill is discounted with banker at a charge of Rs. 100. At maturity the bill return dishonoured. In the books of X, for dishonour, the bank account will be credited by

Answer (b)

a) Rs. 19,900 b) Rs. 20,000

c) Rs. 20,100 d) Rs. 19,800

Accounting Treatment In the Books of Drawee

Accounting for DRAWEE

Held Till Maturity - Dishonor

Bills Payable A/c Dr. To Drawer A/c

Accounting for DRAWEE

Endorsement - Dishonour

Bills Payable A/c Dr. To Drawer A/c

Accounting for DRAWEE

Discounting with Bank - Dishonour

Bills Payable A/c Dr. To Drawer A/c

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