6.8 Bills Of Exchange

Question 1

Why does a creditor need to draw a bill ?

Answer 1

1. His debtor may be unable to pay its debts immediately

Question 2

What is the usage of the bill ?

Answer 2

1. Allow debtor to pay its debts for a certain period of time

Question 3

What is the name of a bill payable on demand ?

Answer 3

1. Sight Bill

Question 4

What is the name of a bill payable at a future date ?

Answer 4

1. Time Bill

Question 5

What are the advantages of a bill of exchange ? ( 5 )

Answer 5

1. It is a legal evidence of debt
2. A creditor can sue on the bill itself
3. It can be cashed before due date by discounting
4. It is a negotiable instrument and can be transferred for settlement of a debt
5. A debtor enjoys the benefit of full period of credit

Question 6

What are the parties to a bill of exchange ? ( 4 )

Answer 6

1. Drawer
2. Drawee
3. Payee
4. Acceptor

Question 7

Who is an Acceptor ?

Answer 7

1. After the drawee had accepted the bill

Question 8

What is a Draft ?

Answer 8

1. A unaccepted bill of exchange

Question 9

What is Acceptance ?

Answer 9

1. A bill that had signed by drawee

Question 10

What is a Dishonoured bill ?

Answer 10

1. A bill that a drawee had accepted but refuses to make payment on the due date

Question 11

What are Noting Charges ?

Answer 11

1. Is a charges after the drawee had refused to make payment of a bill ( Discounting )

Question 12

Who is going to pay Noting Charges ? ( 2 )

Answer 12

1. Paid by creditors / drawer
2. Charges against debtors / acceptor

Question 13

What is Renewing a bill ? ( 2 )

Answer 13

1. Drawer cancel the original bill and draw him a new bill for an extended period
2. The acceptor has to pay interest

Question 14

What will the amount of a new bill include after renewing a bill ? ( 2 )

Answer 14

1. Amount of an original bill
2. Interest charged

Question 15

What are Discounting a bill ?

Answer 15

1. Drawer obtain cash before the maturity date,so bank will charge Discounting Charges

Question 16

How to calculate the discounting charges ?

Answer 16

1. Amount of Bill x % x ( Unexpired Day / 365 )

Question 17

Can a discounting charges of a bill charge to drawee ?

Answer 17

1. No

Question 18

What are negotiating a bill ? ( 2 )

Answer 18

1. When a drawer endorses ( sign on the back of a bill )
2. Transfer a bill to a creditor to settle its debts

Question 19

What are retiring a bill ? ( 3 )

Answer 19

1. When an acceptor makes payment of a bill before the due date
2. The acceptor may receive a discount / rebate from a drawer for the unexpired period of credit
3. Income to Acceptor
   Expenses to Drawer

Question 20

What is Bill Receivable treated as in SOFP ?

Answer 20

1. Current Assets

Question 21

What is Bill Payable treated as in SOFP ?

Answer 21

1. Current Liabilities