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CA Foundation · Accounting · Bills of Exchange and Promissory Notes

Bhatia drew a bill of ₹60,000 on Chopra, who accepted it. Bhatia endorsed it to his creditor Dutt in full settlement. Chopra became insolvent before maturity and paid only 40 paise in the rupee. Dutt is paid the loss by Bhatia. What is the entry in Bhatia's books on dishonour, if Bhatia pays Dutt in cash the full bill amount, and what is his bad debt on Chopra?

Bhatia pays Dutt ₹60,000 and debits Chopra with that amount. Chopra's estate pays 40 paise per rupee, giving ₹24,000 in cash, so the unrecovered ₹36,000 is written off as a bad debt in Bhatia's books.

  1. AChopra A/c Dr. 60,000 to Cash 60,000; later cash received ₹24,000 and bad debt ₹36,000Correct
  2. BChopra A/c Dr. 60,000 to Cash 60,000; later cash received ₹36,000 and bad debt ₹24,000
  3. CDutt A/c Dr. 60,000 to Cash 60,000; bad debt ₹36,000
  4. DChopra A/c Dr. 24,000 to Cash 24,000; bad debt nil

Explanation

Bhatia, as endorser, pays Dutt ₹60,000 and debits Chopra. Chopra pays 40% of ₹60,000 = ₹24,000. The remaining ₹36,000 is a bad debt. Option B uses 60 paise instead of 40 paise.

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