Bills of Exchange and Discount

The discount is calculated on the face value of the bill for the period it is held before maturity. Here, the bill is for 20,000 at 12 percent per annum for 3 months: 20,000 * 0.12 * (3/12) = 600. However, the question asks for the discount on the amount paid on 4.5.2006, which is 1 month before maturity (due date is 4.6.2006). 20,000 * 0.12 * (1/12) = 200.

In a joint venture, if a bill is discounted, the discount charges are considered a joint expense and are shared by the co-venturers in their profit-sharing ratio, not solely borne by the drawee.

Sometimes the acceptor of the bill foresees that it may be difficult to meet the obligation of the bill on maturity and may, therefore, approach the drawer with the request for extension of time for payment.  In such cases the old bill is cancelled and fresh bill with new terms of payment is drawn it is called as renewal of bill. 

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned.

Its treatment is same as we do in the case of Interest Received in Advance.

Rebate on Bills Discounted is also known as Discount Received in Advance, or, Unexpired Discount or, Discount Received but not earned. Its treatment is same as we do in the case of Interest Received in Advance.

When bill is sold to the bank at a discounted rate it is called discounting the bill of exchange.
As cash is received on discounting the bill it is also called encashment.

Closing stock is an asset. If it is zero, it does not represent a loss in the accounting sense; rather, it reflects that all goods were sold or otherwise disposed of. The other statements are standard accounting definitions.

A bill is drawn by the drawer(debtor) on the drawee (creditor) so as to give him a sense of  security for the receivables. But in case the drawer does not want to wait till the maturity period of the bill or rather he has some urgent need of funds, what he will do is get the bill discounted by a bank. When the bill is discounted by the bank, it pays the drawer an amount after deducting a certain percentage, because they are giving the drawer the funds he needs before the date of maturity of the bill and the discount is a type of fee for their service. So here in this case the amount of discount is calculated as follows:

Discount = Face Value * Rate * Time. Discount = 3,000 * 0.12 * (4/12) = 3,000 * 0.12 * (1/3) = 1,000 * 0.12 = 120.

Discount = 8,000 * 0.12 * (4/12) = 320. Net proceeds = Face Value - Discount = 8,000 - 320 = 7,680.

A discounted bill is a contingent liability for the drawer until the date of maturity. Since it is not yet matured, it is disclosed as a note to the accounts rather than a direct entry in the balance sheet assets or liabilities.

The discount charges are shared in the ratio of the proceeds. Since the ratio is 3:1, A bears 3/4 of the discount. 100 * (3/4) = 75.

Discount = 12,000 * 0.12 * (2/12) = 240. Net proceeds = 12,000 - 240 = 11,760. B's share is 1/3 of the proceeds: 11,760 / 3 = 3,920.

The bill was for 25,000. When Bonny becomes insolvent, the amount recoverable is 50 percent of the face value. Bad debt = 25,000 * 0.50 = 12,500.

A received 5,800 (net). B's share is 1/3 of the proceeds (5,800 / 3 = 1,933.33). However, B is responsible for paying his share of the bill amount (1/3 of 6,000 = 2,000) at maturity. A must remit the difference to B to cover B's portion of the liability. 6,000 * (2/3) = 4,000.

Discount = 50,000 * 0.12 * (3/12) = 1,500. Net proceeds = 50,000 - 1,500 = 48,500. Since proceeds are shared equally, B receives 48,500 / 2 = 24,250.

Total amount = 2,00,000. Cash paid = 50,000. Balance = 1,50,000. Discount = 2 percent of 1,50,000 = 3,000. Bill amount = 1,50,000 - 3,000 = 1,47,000.

Noting is a formal process performed by a notary public to provide legal proof that a bill has been dishonored. It is not required for transfer, assignment, or endorsement.

The drawee of a bill of exchange is the person who accepts the bill (the debtor). When the drawer discounts the bill, the drawee is not involved in that transaction and does not record any entry for the discounting.

The second bill is for 6,300 and discounted for 6,120, meaning the discount is 180. The ratio is 2:1. Ram bears 2/3 of the discount: 180 * (2/3) = 120.

The second bill is for 84,000 and discounted for 82,200, so the discount is 1,800. The ratio is 2:1. Ram bears 2/3 of the discount: 1,800 * (2/3) = 1,200.

discount

Discount $ = \dfrac {20}{100} \times 450 = Rs 90 $

Business man gains $20%$ on his cost price, that means, he has sold his goods,
$140 + \dfrac{140\times20}{100} =$ Rs. $168$
Selling price $= 168$