Skip to content

CMA Intermediate · Financial Accounting · Bills of Exchange

Sen & Co. draws a Rs 80,000 bill on Tiwari Ltd, 3 months after date, and endorses it to Gupta Agencies in settlement of an equal debt. Gupta Agencies then discounts it with a bank at 12% p.a. 1 month before maturity. Gupta Agencies records the discounting entry. What amount does Gupta Agencies receive from the bank, and what is the discount?

Gupta Agencies receives Rs 79,200 and bears a discount of Rs 800. The discount is 12% per annum on Rs 80,000 for the remaining one month, which is Rs 800, and it is deducted from the face value to give net proceeds.

  1. ARs 79,200 received; discount Rs 800Correct
  2. BRs 78,400 received; discount Rs 1,600
  3. CRs 76,800 received; discount Rs 3,200
  4. DRs 79,200 received; discount Rs 9,600

Explanation

Discount = 80,000 x 12% x 1/12 = Rs 800. Net proceeds = 80,000 - 800 = Rs 79,200. Rs 1,600 uses 2 months, Rs 3,200 uses 4 months, and Rs 9,600 is a full year of discount, so each uses the wrong period.

Did you get it right without looking?

One question tells you little. A timed set on Bills of Exchange shows your real accuracy, how long you take and where you lose marks.

Practise Bills of ExchangeFree diagnostic mock

More Bills of Exchange questions