Question

Mr. Aman sold goods to Varun worth ₹ 24,000. Varun accepted the bill for 2 months for the same amount on the same date. Aman discounted the bill with bank after one month at 15% p.a. The bill was dishonoured on the due date and Varun requested Aman to accept ₹ 4,000 and interest in cash on remaining amount at 11% p.a. for 3 months. Aman agreed and for the balance Varun accepted a new bill at 3 months. On the due date of the new bill, Varun become insolvent and only 20% amount could be recovered from his estate.

Pass journal entries in the books of Aman.

Answer 1

In the books of Aman
Journal Entries
Date	Particulars	L.F. No.	Debit (₹)	Credit (₹)
(1)	Varun’s A/c     ...Dr.		24,000	-
	To Sales A/c		-	24,000
	(Being the entry passed for credit sale of goods.)
(2)	Bills Receivable A/c   ...Dr.		24,000	-
	To Varun’s A/c		-	24,000
	(Being the acceptance received from Varun.)
(3)	Bank A/c     ...Dr.		23,700	-
	Discount A/c     ...Dr.		300	-
	To Bills Receivable A/c		-	24,000
	(Being the bill discounted with the bank @ 15% p.a. for 1 month.)
(4)	Varun’s A/c     ...Dr.		24,000	-
	To Bank A/c		-	24,000
	(Being the discounted bill dishonoured for non payment of cash.)
(5)	Varun’s A/c     ...Dr.		550	-
	To Interest A/c		-	550
	(Being interest due on balance amount receivable from Varun.)
(6)	Cash/Bank A/c     ...Dr.		4,550	-
	To Varun’s A/c		-	4,550
	(Being part payment along with interest due received.)
(7)	Bills Receivable A/c     ...Dr.		20,000	-
	To Varun’s A/c		-	20,000
	(Being new acceptance received from Varun on balance amount due.)
(8)	Varun’s A/c     ...Dr.		20,000	-
	To Bills Receivable A/c		-	20,000
	(Being new bill dishonoured for non-payment of bill amount.)
(9)	Cash/Bank A/c     ...Dr.		4,000	-
	Bad Debts A/c     ...Dr.		16,000	-
	To Varun’s A/c		-	20,000
	(Being 20% of bill amount recovered from Varun and bad debts written off.)
	Total		1,61,100	1,61,100

Working Notes:

(1) Discount charged by the bank:

Discount = `"P" xx "N" xx "R" xx 1/100`

= `24,000xx1/12xx15/100`

= ₹ 300

(2) Balance amount after part payment = 24,000 − 4,000 = ₹ 20,000

(3) Interest due on Balance Amount = `"P" xx "N" xx "R" xx 1/100`

= `20,000xx3/12xx11/100`

= ₹ 550

(4) New bill drafted and accepted for ₹ 20,000.

(5) Amount recovered by Aman = `24,000xx20/100` = ₹ 4,000

(6) Bad debts incurred by Aman = 20,000 − 4,000 = ₹ 16,000