CA Foundation · Accounting · Bills of Exchange and Promissory Notes
Mehta & Co. holds a ₹80,000 bill accepted by Rao Brothers. Before maturity, Mehta & Co. discounts it with its bank at 12% per annum, 2 months before the due date. What entry amount is debited to Bank Account, and what is the discount charged to the Profit and Loss Account?
Bank is debited with ₹78,400 and discount of ₹1,600 is charged as an expense. Discount is ₹80,000 × 12% × 2/12 = ₹1,600, and the bank pays the bill amount less this discount.
- ABank ₹78,400; Discount ₹1,600Correct
- BBank ₹80,000; Discount ₹1,600
- CBank ₹78,400; Discount ₹9,600
- DBank ₹77,600; Discount ₹2,400
Explanation
Discount = 80,000 × 12% × 2/12 = ₹1,600. Bank receives 80,000 − 1,600 = ₹78,400. Option C uses a full year's discount instead of 2 months, the wrong period.
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