Question

Lilly sold goods to Mathew on 1.3.2017 for Rs 12,000 and drew upon Mathew a bill of exchange for the same amount payable after two months. Lilly immediately discounted the bill with her bank at 9% p.a. The maturity date of the bill was a non business day (holiday), therefore, Lilly had to present the bill as per the provisions of the Indian Instruments Act.1881. The bill was dishonoured by Mathew and Lilly paid Rs 45 as noting charges. Mathew settled the claim of Lilly five days after the dishonour of the bill by a cheque, which includes interest @ 12% for the term of the bill. Journalise the above transactions in the books of Lilly and Mathew and prepare Mathew’s account in the books of Lilly and Lilly’s account in the books of Mathew.

Answer 1

Books of Lilly Journal
Date		Particulars						L.F.	Debit Amount Rs	Credit Amount Rs
2017
Mar.01	Mathew				Dr.				12,000
			To Sales A/c							12,000
	(Goods sold to Mathew)
Mar.01	Bills Receivable A/c				Dr.				12,000
			To Mathew							12,000
	(Mathew's acceptance payable after two months received)
Mar.01	Bank A/c				Dr.				11,820
	Discount A/c				Dr.				180
			To Bills Receivable A/c							12,000
	(Mathew’s bill discounted at 9% p.a.)
May 03	Mathew A/c					Dr.			12,045
			To Bank A/c							12,045
	(Mathew's acceptance dishonoured bank paid Rs 45 as noting charges)
	Note: In this question, May 04 has been considered as Holiday, so the date of maturity will be May 03, 2006 in place of May 04, 2006.
May 08	Mathew					Dr.			241
			To Interest A/c							241
	(Interest @ 12% credited to Mathew on account of bill dishonoured)
May 08	Bank A/c					Dr.			12,286
			To Mathew							12,286
	(Cheque received from Mathew for the amount due from him)

Ledger Mathew's Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2017				2017
Mar.01	Sales		12,000	Mar.01	Bills Receivable		12,000
May03	Bank		12,045	May08	Bank		12,286
May08	Interest		241
			24,286				24,286

Books of Mathew Journal
Date		Particulars		L.F.	Debit Amount Rs	Credit Amount Rs
2017
Mar.01	Purchases A/c		Dr.		12,000
		To Lilly				12,000
	(Goods bought from Lilly)
Mar.01	Lilly		Dr.		12,000
		To Bills Payable A/c				12,000
	(Lilly's acceptance payable after two months accepted)
May 03	Bills Payable A/c		Dr.		12,000
	Noting Charges A/c		Dr.		45
		To Lilly				12,045
	(Bill drawn by Lilly dishonoured)
May 08	Interest A/c		Dr.		241
		To Lilly				241
	(Interest charged @ 12% from Lilly on account of bill dishonoured)
May 08	Lilly		Dr.		12,286
		To Bank A/c				12,286
	(Amount paid to Lilly through cheque)

Ledger Lilly's Account
Dr.							Cr.
Date	Particulars	J.F.	Amount Rs	Date	Particulars	J.F.	Amount Rs
2017				2017
Mar.01	Bills Payable		12,000	Mar.01	Purchases		12,000
May 09	Bank		12,286	May 03	Bills Payable		12,000
				May 03	Noting charges		45
				May 08	Interest		241
			24,286				24,286

Note: In this question, there is a contradiction. As per the discounting rule–Bank is regarded as the holder of the bill. It is the bank who presents the bill for payment and also pays the noting charges on behalf of the drawer (Lilly). However, as per the question, Lilly, who is presenting, discounting the bill and also paying the noting charges. Thus, in the solution, we have assumed that it is bank and not Lilly who presents, discounts and pays the noting charges in case of dishonour of bill.