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

Nair Enterprises discounted a ₹1,20,000 bill with its bank at 10% per annum for 3 months. On the due date the acceptor, Joshi, dishonours the bill, and the bank debits Nair's account for the bill amount together with ₹500 noting charges. What is the amount debited to Joshi's account by Nair Enterprises?

Joshi's account is debited ₹1,20,500, being the bill amount of ₹1,20,000 plus ₹500 noting charges. The bank recovers the full face value from the drawer on dishonour, and the discount already charged is not reversed or added, so it does not affect the amount.

  1. A₹1,20,500Correct
  2. B₹1,20,000
  3. C₹1,17,000
  4. D₹1,23,500

Explanation

On dishonour of a discounted bill, the bank recovers the full bill amount plus noting charges from the drawer, so Nair pays ₹1,20,000 + ₹500 = ₹1,20,500. Nair recovers this from Joshi, so Joshi's account is debited ₹1,20,500. The discount of ₹3,000 was already booked as a loss and is not reversed. Option C wrongly deducts the discount.

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