MODULE 8
HIRE PURCHASE AND INSTALMENT SALE TRANSACTIONS
MODULE 9
ACCOUNTING STANDARDS
Module-Wise Solved Paper: December 2024 (Suggested Answers) P.1
ACCOUNTING FOR SPECIAL TRANSACTIONS
CHAPTER 2.1
ACCOUNTING FOR BILLS OF EXCHANGE
A Quick Review
IMPORTANT DEFINITIONS
According to section 13(1) of the Negotiable Instrument Act, 1881, “A negotiable instrument means a promissory note or bill of exchange or cheque, payable either to order or to the bearer”
According to Section 5 of the Negotiable Instrument Act, 1881, ‘A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.’
OTHER IMPORTANT CONCEPTS
Essential Elements of Bills of Exchange
1. It must be in writing and may be in any language and in any form
2. It must be drawn on a particular date
3. There are three parties to a Bill of Exchange – Drawer/Maker, Drawee and Payee
4. It must be signed by the Drawer/Maker
5. It must contain an unconditional and imperative order to pay
6. The order to pay must be directed to a certain person
7. The order must be to pay a certain sum of money only
8. It must be accompanied with proper stamp as per the requirement of the law
Parties to Bills of Exchange
A bill of exchange transaction often includes the following three parties: Drawer: Drawer is the party that issues a Bill of Exchange - Creditor, Lender or Seller. He is the maker of the bill and his signature is necessary.
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MODULE 2 : ACCOUNTING FOR SPECIAL TRANSACTIONS
Drawee: Drawee is the party to which the order to pay is sent – Debtor, Lendee or Purchaser. The drawee becomes the acceptor of the bill when he/she/it has written the acceptance on the bill of exchange.
Payee: Payee or the beneficiary is the party to which the bill of exchange is payable – May be Drawer or Other Party.
Classification of Bills of Exchange
Documentary Bill: In this, the bill of exchange is supported by the relevant documents that confirm the genuineness of sale or transaction that took place between the seller and buyer.
Demand Bill: This bill is payable when it demanded. The bill does not have a fixed date of payment, therefore, the bill has to be cleared whenever presented.
Usance Bill: It is a time-bound bill which means the payment has to be made within the given time period and time.
Inland Bill: An Inland bill is payable only in one country and not in any other foreign country. This bill is opposite to the foreign bill.
Clean Bill: This bill does not have any proof of a document, so the interest is comparatively higher than the other bills.
Foreign Bill: A bill that can be paid outside India is termed as a foreign bill. Two examples of a foreign bill are an export bill and import bill.
Accommodation Bill: A bill that is sponsored, drawn, accepted without any condition is known as an accommodation bill.
Trade Bill: This kind of bill is specially related only to trade.
Supply Bill: The bill that is withdrawn by the supplier or contractor from the government department is known as the supply bill.
Difference between Trade Bill and Accommodation Bill
Basis of Difference Trade Bill
Objectives
Consideration
Extension of credit
These bills are drawn to facilitate the trade transactions of sale purchases of goods.
There is a definite consideration for which the bill is accepted.
Trade bills are a form of credit extension.
Proceeds When trade bills are discounted, the proceeds remain with the holder
Recovery If trade bills are dishonoured, the amount may be recovered easily through the court.
Accommodation Bill
These bills are drawn to help someone in need of financial assistance.
These bills are drawn without consideration.
These bills are not a form of credit extension.
When these bills are discounted, the Proceeds may be shared by two parties in an agreed ratio.
In case of dishonour of these bills, the drawer cannot file a suit against the drawee.
PAST EXAMINATION QUESTIONS
OBJECTIVE QUESTIONS
Q1. Anup draws a bill for ` 4,000 on Binup. Binup accepts it and returns it to Anup. Anup endorses it over to Zitun. Zitun endorses it in favour of Chinu. On due date, the bill was honoured. Pass Journal Entries in the book of Chinu. [Dec. 2015, 2 Marks]
Ans.
In the Books of Chinu Journal Entries
Particulars
Bills
To Zitun A/c 4,000
(Being the receipt of bill from Zitun)
Bank A/c Dr. 4,000
To Bills Receivable A/c 4,000
(Being the amount realized at maturity)
Q2. On 1st April, 2015 Aloke accepted a bill for ` 5,000 for 3 months drawn by Kuntal. Kuntal endorses the bill in favour of Chinu. At maturity, the bill was dishonoured. Pass the Journal Entries in the Books of Kuntal [Dec. 2015, 2 Marks]
Ans.
In the books of Kuntal
(Being a bill drawn on Aloke)
Chinu A/c Dr. 5,000
To Bills Receivable A/c 5,000
(Being the bills previously drawn on Aloke new endorsed in favour of Chinu)
July, 4 Aloke A/c Dr. 5,000
To Chinu A/c 5,000 (Being the bill dishonoured at maturity)
Q3. A bill of exchange drown on 12th April, 2017 for four months, the date of maturity will be ___________. [June 2017, 1 Mark]
Ans. 14th August, 2017
Q4. The Accommodation bill is drawn
(a) To nance actual purchase or sale of goods
(b) To facilitate trade transmission.
(c) When both parties are in need of funds
(d) None of the above [Dec. 2017, 1 Mark]
Ans. (c) When both parties are in need of funds
Q5. Shiva draws a bill on Sanat on 25th October, 2018 for 90 days, the maturity date of the bill will be
(a) 27th January, 2019
(b) 26th January, 2019
(c) 25th January, 2019
(d) 28th January, 2019 [Dec. 2018, 1 Mark]
Ans. (c) 25th January, 2019
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MODULE 2 : ACCOUNTING FOR SPECIAL TRANSACTIONS
Q6. If Ram’s acceptance which was endorsed by us in favour of Saleem is dishonoured, then the amount will be debited in our books to
(a) Saleem
(b) Ram
(c) Bills Receivable Account
(d) None of the above [June 2019, 1 Mark]
Ans. (b) Ram
Q7. _____________ can be made payable to the bearer.
[Dec. 2019, 1 Mark]
Ans. Bills Receivable
Q8. A Bill of Exchange cannot be
(a) Endorsed
(b) Crossed
(c) None of these
(d) Accepted [Dec. 2021, 1 Mark]
Ans. (b) Crossed
Q9. Bills payable honoured during the year, will be debited to
(a) None of these.
(b) Creditors account
(c) Bills payable account
(d) Cash account
[Dec. 2021, 1 Mark]
Ans. (c) Bills payable account
Q10. X draws a bill on Y. Y accepts the same. Can Y endorse the bill to Z? [Dec. 2021, 1 Mark]
Ans. No, Y cannot endorse the bill to Z because Y is drawee only. X, the drawer can do so.
Q11. A Bill of ` 10,000 is renewed. The drawee pays ` 3,000 as part payment amount of interest charged is ` 200.
The value of new bill is ` _______ [Dec. 2022, 1 Mark]
Ans. ` 7,200
Q12. Rebate is calculated for the period between date of
(a) Payment and maturity date
(b) Drawing and payment of bill
(c) Drawing and maturity date
(d) None of the above [July 2023, 1 Mark]
Ans. (a) Payment and maturity date
Q13. Shiva received a bill for ` 58,550 from Vijay and endorsed it in favour of Makkhu. On the date of maturity, the bill was dishonoured and for it noting charges of ` 450 paid by holder. In this case Shiva will debit—
(a) Vijay by ` 58,550
(b) Vijay by ` 58,100
(c) Vijay by ` 59,000
(d) Noting charges account by ` 450 [Dec. 2023, 2 Marks]
Ans. (c) Vijay by ` 59,000
Reason: Noting Charges are to be borne by the Drawee, Hence Shiva will recover ` 58,550 + ` 450 = ` 59,000 from Vijay towards bill and noting charges.
Q14. X drew a bill of exchange on Y for 20,000 payable after 3 months. On the due date, Y could not make the payment and requested to renew a fresh bill for another 3 months at 12% interest. The amount of fresh bill would be
(a) ` 20,600
(b) ` 22,400
(c) ` 21,200
(d) ` 20,300 [June 2024, 2 Marks]
Ans. (a) ` 20,600
Working Note:
Interest = 20,000 × 12% × 3/12 = Rs. 600
Amount of Fresh Bill = 20,000 + 600 = Rs. 20,600.
THEORY QUESTIONS
Q1. Write as short note on Accommodation Bill. [June 2016, 5 Marks]
Ans. (i) An accommodation Bill is a bill of exchange signed by a party as drawer, drawee, endorser to accommodate another party whose credit is not strong enough to enable him to borrow on his single name.
(ii) It is drawn for the purpose, of arranging temporary nance. Therefore, an Accommodation Bill is a bill of exchange which has been drawn, on and accepted by a reputable party or the purpose of giving value to the bill so that it can be discounted.
(iii) What actually happens in the case of an accommodation bill is that one party draws the bill and the other party accepts it. Then, the drawing party gets it discounted from the bank and receives ready cash of which he is in need.
(iv) The money received is either wholly utilized by the drawer, or by both, the drawee and the acceptor.
(
v) Before the due date approaches, the required sum of money is sent to the acceptor in order to make him able to honour the bill and the bill is honoured on the due date. Thus, although there is no legal liability, there exists a strong moral understanding between the parties concerned.
Q2. Write a short note on Features of a Bill of Exchange. [Dec. 2022, 5 Marks]
Ans. As per Section 5 of the Negotiable Instruments Act, a bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person, to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument. The essential of bill of exchange are as:
(i) There are three parties the ‘Maker’ is termed as the ‘Drawer’ in Bill of Exchange. He is the creditor. The person liable to pay the money is called the ‘Drawee’. The person entitled to get the money is termed as the ‘Payee’. It should be noted that drawer himself can also be the payee. It must be drawn on a speci c person
(ii) The bill drawer being the creditor, orders the drawee to pay a certain of sum money.
(iii) A Time Bill of Exchange can be made payable to the bearer.
(iv) It is an instrument in writing and unconditional
(v) It must be in writing, dated, stamped and signed by Drawer
(vi) It must be payable in demand or after a de nite period of time, and for a certain amount of money.
NUMERICAL PROBLEMS
Q1. On 20th July, 2012, Sohan drew a bill for ` 50,000 on Mohan for the period of four months and Mohan accepted it. It was for mutual accommodation of both to the extent of 2/3rd and 1/3rd on 23rd July, 2012, Sohan discounted the bill with the Bank @ 12% per annum and remitted one-third of proceeds to Mohan. On 18th November, 2012 Mohan drew another bill for ` 71,000 on Sohan to provide funds to meet the first bill, for the period of three months, which was accepted by Sohan. On 21st November, 2012, Mohan discounted it with Bank @ 12% per annum. With this amount, the first bill was met out and ` 12,580 was remitted to Sohan. On 1st February, 2013, Sohan became insolvent and Mohan received a dividend of 60 paise in a rupee in full settlement on 15th February, 2013. Give journal entries to record the above transactions in the books of Sohan and prepare Sohan’s account in the ledger of Mohan. [Dec. 2013, 10 Marks] Ans.
Journal Entries in the books of Sohan
20.07.2012 Bills Receivable A/c
50,000 To Mohan A/c 50,000 (B/R Acceptance received)
23.07.2012 Bank A/c Dr. 48,000
Discount A/c Dr. 2,000 50,000 To Bills Receivable A/c (B/R discounted @ 12% per annum)
23.07.2012 Mohan A/c Dr. 16,667 To Bank/Cash A/c 16,000 To Discount A/c 667
(Remittance sent to Mohan & 1/3 of discount debited)
18.11.2012 Mohan A/c Dr. 71,000 To Bills Payable A/c 71,000 (Bill of Mohan accepted)
23.11.2012 Cash A/c Dr. 12,580
Discount A/c Dr. 1,420 To Mohan 14,000
(Amount received from Mohan & 2/3 discount charged by him)
To Mohan
(B/P dishonoured)
(Payment of 60 paise in a rupee made to mohan for the amount due)
Books of Mohan
Sohan’s Account
Working Notes:
Calculation of distribution of discount:
Q2. Big owes Fast ` 12,000 for which the former accepts a three months’ bill drawn by the latter. Fast immediately discounts the bill with his banker, Strong Bank, at 12% p.a. On the due date the bill is dishonoured and Strong Bank pays ` 40 as noting charges. Big pays ` 2,360 including interest of ` 400 and gives another bill at three months’ for the balance. Fast endorses the bill to his creditor Thin in full settlement of his debt for ` 10,200. Thin discounts the bill with banker Strong Bank who charges ` 80 as discount. Before maturity Big becomes bankrupt and first and final dividend of 20 paise in a ` is realized from his estate.
Show the journal entries in the books of Thin and Strong Bank and the ledger account of Big in the books of Fast. [June 2014, 6 Marks]
Allowed A/c
In the books of Thin Journal
(Being Endorsed bill received from Fast in full settlement)
(Being Bill discounted by the bank)
(Being Bills dishonoured at maturity)
In the books of Strong Bank Journal
(Being Bill discounted which is due for 3 months)
Noting charges incurred for dishonour of bill)
(Being Bill dishonoured, noting charges being ` 40)
To Discount A/c
(Being Bill discounted which is due for 3 months)
Thin’s Current A/c
To Bills Discounted A/c
(Being Bill dishonoured at maturity)
In the books of Fast Big’s Account
Q3. Babai sold goods to Kachari for ` 90,000 on 1st April, 2014 for which the later accepted three bills of ` 30,000 each due respectively in 1,2 and 3 months. The first bill is retained by Babai and is duly met. The second bill was discounted (discount being ` 600) and is met in due course. The third bill is also discounted (discount being ` 900) and is dishonoured, the Noting charges being ` 150. New arrangements were duly made whereby Kachari pays Cash ` 10,150 and accepted a new bill due in 2 months for the balance of the amount with interest at 15% p.a. The bill is retained, on due date the same is dishonoured, noting charges being ` 180. Kachari declared insolvent on 15th Sept. 2014 and 35 paise in a rupee were received from his estate. Required: Pass Journal entries in the Books of Babai. [June 2015, 8 Marks]
Financial Accounting (FA) | CRACKER
AUTHOR : TARUN AGARWAL
PUBLISHER : TAXMANN
DATE OF PUBLICATION : JANUARY 2025
EDITION : 4TH EDITION
ISBN NO : 9789364554428
NO. OF PAGES : 520
BINDING TYPE : PAPERBACK
DESCRIPTION
This book is specifically designed to meet the requirements of the Intermediate Level Cost & Management Accountancy Examination. It includes comprehensive questions and detailed answers aligned with the latest ICMAI syllabus.
The Present Publication is the 4th Edition for the CMA Intermediate | New Syllabus | June/Dec. 2025 Exams. This book is authored by CA. Tarun Agarwal, with the following noteworthy features:
• [Strictly as Per the New ICMAI Syllabus] Ensures complete alignment with the latest requirements
• [Content Coverage]
o Past Exam Questions, including Module-wise Solved Paper of December 2024
• [Tabular Summaries] Provided at the beginning of each chapter for quick reference
• [Marks Distribution] Detailed module-wise distribution from June 2017 onwards
• [Previous Exam Trend Analysis] covered from July 2023
• [ICMAI Study-Material Comparison] is provided module-wise for a comprehensive understanding