Question

Lilly sold goods to Mathew on 1.3.2017 for ₹ 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 ₹ 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 ₹	Credit Amount ₹
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 ₹ 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)

 

Dr.	Ledger Mathew's Account						Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
2017				2017
Mar.01	Sales		12,000	Mar.01	Bills Receivable		12,000
May.03	Bank		12,045	May.08	Bank		12,286
May.08	Interest		241
			24,286				24,286

 

Books of Mathew Journal
Date	Particulars	L.F.	Debit Amount ₹	Credit Amount ₹
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)

 

Dr.	Ledger  Lilly's Account						Cr.
Date	Particulars	J.F.	Amount ₹	Date	Particulars	J.F.	Amount ₹
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.