CMA Intermediate · Financial Accounting · Bills of Exchange
Bose Traders drew a Rs 60,000 bill on Sen & Co. for 3 months and discounted it with the bank at 10% p.a. for the full 3 months. At maturity the bill was dishonoured, and the bank charged Rs 500 as noting charges in addition to the bill amount. What is the debit to Sen & Co. in Bose Traders' books?
Sen & Co. is debited Rs 60,500, being the bill amount of Rs 60,000 plus Rs 500 noting charges paid to the bank. The earlier discount of Rs 1,500 is already an expense and does not change the amount recoverable from the drawee.
- ARs 60,500Correct
- BRs 60,000
- CRs 59,000
- DRs 62,000
Explanation
Because the bill was discounted, Bose Traders must pay the bank on dishonour. Bose pays Rs 60,000 plus Rs 500 noting charges and debits Sen & Co. with Rs 60,500. The Rs 1,500 discount (60,000 x 10% x 3/12) is an earlier expense and is not recovered or adjusted. Rs 60,000 ignores noting charges.
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