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CMA Intermediate · Financial Accounting · Bills of Exchange

Pooja Traders receives a Rs 25,000 bill from Quick Mart on 1 March, due 1 June, and sends it for collection to the bank. On 31 March the financial year ends. Which treatment is correct at the year-end for the bill in Pooja Traders' books?

A bill sent to the bank only for collection is still Pooja Traders' asset because it has neither matured nor been dishonoured. It is shown under Bills Receivable in current assets. A contingent liability would arise only if the bill had been discounted or endorsed.

  1. AShow it under Bills Receivable (with the bank for collection) as a current assetCorrect
  2. BWrite it off as bad debt
  3. CTreat it as a contingent liability of Rs 25,000
  4. DShow it as income received in advance

Explanation

The bill is not yet matured or dishonoured, and was only sent for collection, not discounted. It remains an asset and is shown as Bills Receivable in current assets. A contingent liability arises only for discounted or endorsed bills.

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