Page 277 - VIRANSH COACHING CLASSES

2. Discounting the Bill of Exchange : A bill is drawn for a particular term and the acceptor pays
the amount of bill on the due date. Drawer or Holder can obtain payment from bank before
its due date by discounting the bill. Discounting is a device to convert the bill into its present
value. A bill can be generally discounted with the bank where the Drawer has an account. Bank
deducts certain amount of bill for the services rendered which is known as discounting charges.
Discount being an expense for Drawer is debited in his books of accounts.

Sells the goods on credit
Seller / Creditor Buyer / Debtor

Draws the bill
Drawer Drawee

Holder / Payee Drawee accepts the bill Acceptor

Presents the bill

Cash received
on due date

Discounts the bill
Received Cash
with the bank

BANK

Calculation of Discount
Illustration 1 :
Rahul draws a bill on Atul for ` 15,000 on 1 April, 2019 payable after 4 months. Calculate the
st
amount of discount in the following cases :
i) The bill has been discounted @ 10% p.a. on 1 April, 2019.
st
ii) The bill has been discounted @ 10% p.a. on 1 June, 2019.
st
Solution :
Rate Unexpried months
i) Discount = Amount of Bill × ×
100 12
10 4
= 15,000 × ×
100 12
= ` 500
(Note: The bill is with the bank for 4 months)

Rate Unexpried months
ii) Discount = Amount of Bill × ×
100 12
10 2
= 15,000 × ×
100 12
= ` 250
(Note : The bill is with the bank for 2 months only)

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