CMA Foundation · Fundamentals of Financial and Cost Accounting · Bills of Exchange
Kumar Ltd. holds a 3-month bill of Rs 60,000 accepted by Iyer & Sons. Kumar discounts it with the bank immediately at 12% per annum and receives the net proceeds. What amount of discount is debited to Discount Account in Kumar's books?
The discount is Rs 1,800, calculated as Rs 60,000 multiplied by 12 percent for three months out of twelve. Kumar Ltd. receives Rs 58,200 from the bank and debits Rs 1,800 to Discount Account as a financial expense, crediting Bills Receivable with Rs 60,000.
- ARs 7,200
- BRs 1,800Correct
- CRs 2,400
- DRs 58,200
Explanation
Discount = 60,000 x 12% x 3/12 = Rs 1,800. Net cash received is Rs 58,200. Rs 7,200 is the full-year discount, a mistake of ignoring the 3-month period, and Rs 58,200 is the cash proceeds, not the discount.
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