NCERT Solutions for Class 11 Accountancy Chapter 8 - Bill of Exchange

NCERT Solutions are said to be an extremely helpful study material while preparing for the CBSE Class 11 Accountancy examinations. Our subject matter experts have prepared the NCERT solutions with utmost care in an easy-to-understand manner.

NCERT Solutions For Class 11 Commerce Accountancy Chapter 8 – Bill of Exchange furnishes us with all-inclusive information on all the concepts. As the students have to learn the basics of accountancy, these solutions for Class 11 NCERT a comprehensive study material which explains the concepts in a great way.

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Short Answers for Class 11 Accountancy Chapter 8 – Bill of Exchange

1. Name any two types of commonly used negotiable instruments.

1. Promissory Notes

2. Cheques

2. Write two points of distinction between bills of exchange and promissory note.

3. State any four essential features of a bill of exchange.

The following four features are considered essential for a bill of exchange:

1. A bill of exchange must be in writing

2. A bill of exchange should contain an unconditional order to pay.

3. Drawer of the bill must sign the bill.

4. The amount and the expiry date should be mentioned specifically in the bill of exchange.

4. State the three parties involved in a bill of exchange.

A bill of exchange involves three parties, and they are the following:

1. Drawer/Maker/Holder – Responsible for issuing the bill

2. Payee/Holder – The person who will receive the payment

3. Drawee/Acceptor – One who has to accept the bill

5. What is meant by maturity of a bill of exchange?

The date when the bill is ready for payment is called the maturity of a bill. The date of maturity is arrived at after adding 3 days of grace to the due date as per the terms of the bill. The concept of the due date will further help you understand the maturity of a bill. It consists of the following terms:

1. Bill at Sight: This type of bill is due as and when it is presented.

2. Bill after Sight: In this type of bill, the due date is calculated from the date the debtor accepts the bill plus the period as per the terms of the bill. The maturity date is calculated by adding 3 days to the due date.

3. Bill after Date: In this type of bill, the due date is calculated from the date on which the bill is drawn plus the period as per the terms of the bill. The maturity date is calculated by adding 3 days to the due date.

Exceptions to maturity of the bill: If the due date of the bill falls on a national holiday (like Independence Day) or on a Sunday, the bill due date is counted one day prior to the original date, and if the due date falls on an emergency holiday (like a nationwide strike), the bill due date is counted one day later.

6. What is meant by dishonour of a bill of exchange?

The situation when the drawee of the bill of exchange is unable to process the payment as per the maturity date of the bill is known as dishonour of the bill of exchange. With this, the liability of the acceptor is re-established, and he/she becomes a debtor again. To reflect the changes, the receipt of the bill of exchange should be reversed.

7. Name the parties to a promissory note

Two parties are involved in a promissory note:

1. Maker/Drawer, Also known as promisor, is the one who is the maker of the note and is the one responsible for paying the sum as mentioned on the promissory note.

2. Promisee or Payee is the one who will be receiving the payment.

8. What is meant by acceptance of a bill of exchange?

A bill of exchange drawn by a creditor upon a debtor involves an unconditional order to pay in writing, but the same must be accepted by the debtor or someone on his/her behalf in order to make the debtor liable to pay. It is a draft before acceptance by the debtor. So once the debtor has written the term “accepted” and signed the document, it is then known as a bill of exchange, and this process is called acceptance of a bill of exchange.

9. What is noting of a bill of exchange?

A bill of exchange is said to be dishonoured when the drawee is unable to make the payment upon presenting the bill by the drawer. To retain legal evidence of the dishonoured bill, the notary public needs to record it. The charges levied by the notary public for recording the failed transaction are called noting charges, and the process of recording is referred to as noting.

10. What is meant by renewal of a bill of exchange?

A bill of exchange is said to be renewed when the debtor/acceptor has insufficient funds to pay the drawer and hence requests for a time extension in order to make payment. A new bill of exchange is drawn on being agreed upon by the drawer of the bill. This process is called the renewal of the bill of exchange. The bill gets renewed only if the drawee agrees to pay a certain rate of interest as decided for the period of extension.

11. Give the performa of a Bills Receivable Book.

12. Give the performa of a Bills Payable Book.

13. What is retirement of a bill of exchange?

When a drawee of a bill of exchange has adequate funds and requests the drawer to accept the payment before the maturity date, and once the drawer accepts, it is known as the retirement of the bill of exchange as the bill of exchange is closed before maturity.

14. Give the meaning of rebate.

The discount received by a drawee from the holder on advance payment of the bill of exchange to the holder (before the due date or maturity date) is known as a rebate.

15. Give the performa of a Bill of Exchange.

The following is a performa of bill of exchange

Mr. Y (Drawer) ₹ 10,000		Bengaluru July 10, 2019
One month after the date, pay to me, or my order the sum of rupees ten thousand only, for the value received
Accepted (Signed) To Mr. W (Drawee) July 10, 2019 J.P Nagar, Bengaluru 560078		(Signed) Mr. Y Brigade Road, Bengaluru 560001

Long Answers for Class 11 Accountancy Chapter 8 – Bill of Exchange

1. A bill of exchange must contain an unconditional promise to pay. Do you agree with a statement?

The Negotiable Instrument Act, 1881 defines a bill of exchange as, “A bill of exchange is defined as 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.”

One of the most significant feature of a negotiable instrument is an unconditional order to pay. The drawee cannot add any conditions such as payment will be done only if debtors pay or business makes profit.

A bill of exchange must contain an unconditional order to pay for the following reasons:

1. To avoid any kind of conflict at the time of payment

2. To provide security to the creditor and also bind the debtor to pay the amount.

3. To comply with The Negotiable Instruments Act, 1881.

2. Briefly explain the effects of dishonour and noting of a bill of exchange.

When the drawee of the bill of exchange is unable to complete the payment on the date of maturity of the bill, it is known as dishonour of the bill of exchange. With this liability of the acceptor is re-established, and he/she becomes a debtor again. To reflect the changes, the receipt of the bill of exchange should be reversed.

The following entries will be made in books of holder/drawer (Nonpayment of noting charges):

Entry in the books of drawee:

Notary public charges a fee for keeping proof of a dishonoured bill. These charges are borne by the drawee of the bill.

The following pieces of information are noted by the notary public.

1. Amount and date of the bill

2. Possible Reason for dishonouring of bill

3. Fees charged for Noting

Entries of noting charges in the books of drawer (Payment done for noting charges):

In the books of drawee:

3. Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example.

The following steps discuss the procedure for calculating the bill of exchange maturity date:

1. Determine the due date of the bill as per the terms of bills of exchange.

2. Grace period of three days must be added to the due date to arrive at the maturity date.

For e.g., a bill having a due date of 30 days (a month) is drawn on 1^st August, then the due date is 1^st September. Adding 3 grace periods, we arrive at bill maturity and payment due date, which is on 4^th October.

The calculation of days of the grace period depends on these situations:

1. Known Holidays: If the due date for payment falls on a national holiday or on a Sunday, then payment needs to be processed the following day. The following examples will make it easier to understand.

1. A bill that is drawn on 23^rd December with a due date of 23^rd January, adding the grace period (3 days), the maturity date comes to 26^th January. However, as 26^th January is a national holiday, 25^th January becomes the due date for payment.
2. A bill is drawn on 1^st June with a maturity period of a month; the due date arrived is 1^st July. On adding 3 days of grace, the payment due date is 4^th July. However, if 4^th July is a Sunday, in this case, payment needs to be completed on 3^rd July.

2. Unexpected holidays: If the due date for payment falls on a holiday due to an emergency, then the next day becomes the day on which payment needs to be done. For example, if a bill is drawn on 1^st May with a term of 20 days, then, adding a grace period of 3 days, the payment due date becomes 24^th May. But, if a nationwide strike gets declared on 24^th May, then 25^th May is the new due date for the payment of the bill as per rules.

4. Distinguish between bill of exchange and promissory note.

The points of comparison are as follows:

5. Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.

Retirement of a bill of exchange happens when the holder of the bill of exchange receives a payment from the acceptor before the accepted maturity date of the bill. In such cases, the bill holder provides some discount to the acceptor and such a discount offered is called a “rebate”.

The following are the benefits of retiring a bill of exchange for debtor and creditor:

1. Improves the trust between two parties in a transaction, namely, debtor and creditor.

2. Allows creditors to use the money for further business

3. Rebate provided by creditor becomes the revenue for a debtor

4. More business transactions can be conducted between two parties.

6. Explain briefly the purpose and advantages of maintaining of a Bills Receivable Book.

In day-to-day operations, a business receives many bills. Maintaining a journal for all such bills is a cumbersome task. In this case, a specialized book is created which keeps a record of all such bills that are received from the debtors. This book contains all the necessary information, such as bill date, due date, amount, and debtor’s name, and it is summed up on a periodical basis and the balance thus obtained is transferred to the debit side of the bills receivable account.

Maintaining a bills receivable book has the following benefits:

1. All information pertaining to the bills receivable, such as due date, amount, etc., get recorded in one place, thereby making it easy to access the records.

2. Likelihood of fraud is greatly minimized as bills are recorded in one place.

3. Higher level of liability and obligation exists on the person maintaining the accounts. If any error is spotted, it can be rectified easily.

4. Time of the accountant is saved as the recording of transactions is recurring and similar in nature.

5. As it is a particular book only dealing with bills receivable, it is easy to locate all details pertaining to a specific bill of exchange.

7. Briefly explain the benefits of maintaining a Bills Payable Book and state how is its posting is done in the ledger?

Maintaining the bills payable book has the following benefits:

1. Quick, efficient and accurate recording of business transactions.

2. Minimizes the chances of fraud as all the bills are recorded in one place

3. A high degree of accountability and answerability on the part of the accountant is observed as all the transactions get verified by the same person, which leads to easy detection and rectification of errors.

4. As information is documented by an individual, it improves the division of labour and efficiency of the organization.

The procedure of posting to ledger:

The recordings from the Bills Payable Book are posted to the accounts of the creditors who received acceptance from the debtors. These books are then totalled periodically and credited to the Bills Payable Account in the ledger.

Numerical Answers for Class 11 Accountancy Chapter 8 – Bill of Exchange

1. On Jan 01, 2016 Rao sold goods ₹ 10,000 to Reddy. Half of the payment was made immediately and for the remaining half Rao drew a bill of exchange upon Reddy payable after 30 days. Reddy accepted the bill and returned it to Rao. On the due date Rao presented the bill to Reddy and received the payment. Journalise the above transactions in the books Rao and prepare of Rao’s account in the books of Reddy.

The transactions are journalized below:

2. On Jan 01, 2016, Shankar purchased goods from Parvati for ₹ 8,000 and immediately drew a promissory note in favour of Parvati payable after 3 months. On the date of maturity of the promissory note, the Government of India declared holiday under the Negotiable Instrument Act 1881. Since, Parvati was unaware about the provision of the law regarding the date of maturity of the bill, she handed over the bill to her lawyer, who duly presented the bill and received the payment. The amount of the bill was handed over by the lawyer to Parvati immediately. Record the necessary Journal entries in the books of Parvati and Shankar.

The necessary journal entries are as follows:

3. Vishal sold goods for ₹ 7,000 to Manju on Jan 05, 2016 and drew upon her a bill of exchange payable after 2 months. Manju accepted Vishal’s draft and handed over the same to Vishal after acceptance. Vishal immediately discounted the bill with his bank@12% p.a. On the due date Manju met her acceptance. Journalise the above transactions in the books of Vishal and Manju.

The transactions are journalized as follows:

4. On 01 Feb, 2016, John purchased goods for ₹ 15,000 from Jimmi. He immediately made a payment of ₹ 5,000 by cheque and for the balance accepted the bill of exchange drawn upon him by Jimmi. The bill of exchange was payable after 40 days. Five days before the maturity of the bill, Jimmi sent the same to his bank for collection. The bank duly presented the bill to John on the due date who met the bill. The bank informed the same to Jimmi. Prepare John’s account in the books of Jimmi and Jimmi account in the books of John.

The entries are shown below:

5. On Jan 15, 2015, Kartar Sold goods for ₹ 30,000 to Bhagwan and drew upon him three bills of exchanges of ₹ 10,000 each payable after one month, two month, and three months respectively. The first bill was retained by Kartar till its maturity. The second bill was endorsed by him in favour of his creditor Ratna and the third bill was discounted by him immediately @ 6% p.a. All the bills were met by Bhagwan. Journalise the above transactions in the books of Kartar and Bhagwan. Also prepare ledger accounts in books of Kartar and Bhagwan.

The solution is as follows:

6. On Jan. 01, 2016 Arun sold goods for ₹ 30,000 to Sunil. 50% of the payment was made immediately by Sunil on which Arun allowed a cash discount of 2%. For the balance Sunil drew a promissory note in favour of Arun payable after 20 days. Since, the date of maturity of bill was a public holiday, Arun presented the bill on a day, as per the provisions of Negotiable Instrument Act which was met by Sunil. State the date on which the bill was presented by Arun for payment and journalise the above transactions in the books of Arun and Sunil.

The transactions are journalized as follows:

7. Darshan sold goods for ₹ 40,000 to Varun on 8.1.2016 and drew upon him a bill of exchange payable after two months. Varun accepted the bill and returned the same to Darshan. On the due date the bill was met by Varun. Record the necessary Journal entries in the books of Darshan and Varun in the following circumstances.

· When the bill was retained by Darshan till the date of its maturity.

· When Darshan immediately discounted the bill @ 6% p.a. with his bank.

· When the bill was endorsed immediately by Darshan in favour of his creditor Suresh.

· When three days before its maturity, the bill was sent by Darshan to his bank for collection.

The entries are shown below:

(i)

(ii)

(iii)

(iv)

8. Bansal Traders allow a trade discount of 10% on the list price of the goods purchased from them. Mohan traders, who runs a retail shop made the following purchases from Bansal Traders.

Date Amount

₹

21 Dec, 2016 1,000

26 Dec, 2016 1,200

Dec.18, 2016 2,000

31 Dec, 2016 5,000

For all the purchases Mohan Traders drew promissory note in favour of Bansal Traders payable after 30 days. The promissory note for the sale of Dec. 21, 2016 was retained by Bansal Traders with them till the date of its maturity. The promissory note drawn on 26.12.2016 was discounted by Bansal Traders from their bank at 12% p.a. The promissory note drawn on Dec. 28, 2016 was endorsed by Bansal Traders in favour of their creditor Dream Soaps in full settlement of a purchase amounting to ₹ 1,900. On 25.1.2017 Bansal Traders sent the promissory note drawn on Dec. 31, 2016 to their bank for collection. All the promissory notes were met by Mohan Traders. Record the necessary journal entries for the above transactions in the books of Bansal Traders and Mohan Traders and prepare Mohan Traders account in the books of Bansal Traders and Bansal Traders account in the books of Mohan Traders.

The necessary journal entries are as follows:

9. Narayanan purchased goods for ₹ 25,000 from Ravindran on Feb. 01, 2016. Ravindran drew upon Narayanan a bill of exchange for the same amount payable after 30 days. On the due date Narayanan dishonoured his acceptance. Pass the necessary journal entries in the books of Ravindran and Narayanan in following cases:

• When the bill was retained by Ravindran with him till the date of its maturity.
• When the bill was discounted by Ravindran immediately with his bank @ 6% p.a.
• When the bill was endorsed to his creditor Ganeshan.
• When the bill was sent by Ravindran to his bank for collection a few days before it maturity.

Necessary journal entries are as follows:

(i) : When the bill was retained by Ravindran with him till the date of its maturity

(ii) : When the bill was discounted by Ravindran immediately with his bank @ 6% p.a.

(iii) : When the bill was endorsed to his creditor Ganeshan

(iv): When the bill was sent by Ravindran to his bank for collection a few days before it maturity

10. Ravi sold goods for ₹ 40,000 to Sudershan on Feb 13, 2016. He drew four bills of exchange upon Sudershan. The first bill was for ₹ 5,000 payable after one month. The second bill was for ₹ 10,000 payable after 40 days; the third bill was for ₹ 12,000 payable after three months and fourth bill was for the balance amount payable after 19 days. Sudershan accepted all the bills and returned the same to Ravi. Ravi discounted the first bill with his bank at 6% p.a. He endorsed the second bill to his creditor Mustaq for the full settlement of a debt of ₹ 10,200. The third bill was kept by Ravi with him till the date of maturity. Five days before the maturity of the fourth bill, Ravi sent the bill to his bank for collection. All the four bills were dishounoured by Sudarshan on maturity. Sudershan settled Ravi’s claim in cash three days after the dishonour of each bill along with interest @ 12% p.a. for the terms of the bills. You are requested to record the necessary journal entries in the books to Ravi, Sudershan, Mustaq and bank for the above transaction. Also prepare Sudershan’s account and Mustaq’s account in the books of Ravi.

The necessary journal entries are shown below: