CA FOUNDATION: ACCOUNTING · BILLS OF EXCHANGE AND PROMISSORY NOTES

Bills of exchange: discounting with a bank

Discount = Bill amount × Rate × Unexpired period ÷ 12 (months). Cash received = Bill amount − Discount.

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Worked examples

Example 1 · level 1

Mehta Enterprises discounted a bill of ₹77,000 with its bank @ 18% p.a. The unexpired period (including days of grace) was 2 months. How much discount did the bank charge?

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Discount = 77,000 × 18/100 × 2/12 = ₹2,310.

Answer: ₹2,310

Example 2 · level 2

Joshi Pharma discounted a bill of ₹67,000 with its bank @ 15% p.a. The unexpired period (including days of grace) was 2 months. How much cash did the firm receive?

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Discount = 67,000 × 15/100 × 2/12 = ₹1,675.
Cash received = ₹67,000 − ₹1,675 = ₹65,325.

Answer: ₹65,325

Example 3 · level 3

Reddy Agro discounted a bill of ₹70,000 with its bank @ 10% p.a. The unexpired period (including days of grace) was 5 months. How much cash did the firm receive?

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Discount = 70,000 × 10/100 × 5/12 = ₹2,916.67.
Cash received = ₹70,000 − ₹2,916.67 = ₹67,083.33.

Answer: ₹67,083.33