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Question

PRACTICAL PROBLEMS

On 7th May, 2011 Kulkarni of Karvenagar draws a bill on Patwardhan of Latur for Rs 18,000 at 3 months. Patwardhan accepts and returns it to Kulkarni. Kulkarni then sent the bill into his bank for collections.

On due date Patwardhan finds himself unable to make payment of the bill and request Kulkarni to renew it. Kulkarni agreed on the condition that Patwardhan should pay Rs 5,000 in cash, and should accept new bill for the balance at 2 months with interest @ 18% p.a. These arrangements were carried through. Before due date Patwardhan declared as insolvent and 20% of the amount due could be recovered from his private estate as first and final dividend.

Give journal entries in the books of Kulkarnis. Also prepare Kulkarni’s Accounts in the books of Patwardhan.

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Solution

Books of Kulkarni
Journal Entry
Date
Particulars
L.F.
Debit Amount
Rs
Credit Amount
Rs
2011
May.07
Bills Receivable A/c
Dr.
18,000
To Patwardhan
18,000
(Bill drawn and accepted)
May.07
Bill Sent for Collection A/c
Dr.
18,000
To Bills Receivable A/c
18,000
(Bill sent to bank for collection)
Aug.10
Patwardhan
Dr.
18,000
To Bill Sent for Collection A/c
18,000
(Bill cancelled)
Aug.10
Cash A/c
Dr.
5,000
To Patwardhan
5,000
(Cash received from Patwardhan)
Aug.10
Patwardhan
Dr.
390
To Interest A/c
390
(Interest charges due on Rs 13,000 @ 18% for 2 months)
Aug.10
Bills Receivable A/c
Dr.
13,390
To Patwardhan
13,390
(New bill drawn and accepted with interest of Rs 390)
Oct.13
Patwardhan
Dr.
13,390
To Bills Receivable A/c
13,390
(Bill cancelled due to insolvency)
Oct.13
Cash/Bank A/c
Dr.
2,678
Bad-Debts A/c
Dr.
10,712
To Patwardhan
13,390
(20% of the amount recovered from his private estate)
In the Books of Patwardhan
Kulkarni’s Account
Dr.
Cr.
Date
Particulars
J.F.
Amount
(Rs)
Date
Particulars
J.F.
Amount
(Rs)
2011
2011
May.07
Bills Payable A/c
18,000
May.07
Balance b/d
18,000
Aug.10
Cash A/c
5,000
Aug.10
Bills Payable A/c
18,000
Aug.10
Bills Payable
13,390
Oct.13
Interest A/c
390
Oct.13
Cash A/c
2,678
Oct.13
Bills Payable A/c
13,390
Oct.13
Deficiency
10,712
49,780
49,780

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