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CMA Foundation · Fundamentals of Financial and Cost Accounting · Bills of Exchange

Kiran Ltd. holds a ₹50,000 bill accepted by Lal & Sons. Kiran Ltd. discounts it with its bank at a rate that gives a discount of ₹1,500. In Kiran Ltd.'s books, the entry on discounting is:

Kiran Ltd. debits Bank ₹48,500 and Discount ₹1,500, and credits Bills Receivable ₹50,000. The bank pays face value less discount, and the discount is a charge to the profit and loss account.

  1. ABank A/c Dr. 48,500, Discount A/c Dr. 1,500 to Bills Receivable A/c 50,000Correct
  2. BBank A/c Dr. 50,000 to Bills Receivable A/c 48,500 and Discount A/c 1,500
  3. CBank A/c Dr. 48,500 to Bills Receivable A/c 48,500
  4. DBank A/c Dr. 51,500 to Bills Receivable A/c 50,000 and Discount A/c 1,500

Explanation

Cash received is 50,000 − 1,500 = 48,500. The bill is removed at its full face value of 50,000 and the 1,500 is a financial expense (loss). Option C ignores the loss, so the credit would not tally with the face value of the bill. Options B and D reverse the cash or discount treatment.

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