When a drawee of bill of exchange has adequate funds and requests the drawer to accept the payment before maturity date, and once the drawer accepts, it is known as retirement of the bill of exchange as the bill of exchange is closed before maturity.

Question - 14 : - Give the meaning of rebate.

Answer - 14 : -

The discount received by a drawee from the holder on advance payment of the bill of exchange to the holder (before due date or maturity date) is known as rebate.

Question - 15 : - Give the performa of a Bill of Exchange.

Answer - 15 : -

The following is aperforma of bill of exchange

Mr. Y (Drawer)

₹ 10,000

Bengaluru

July 10, 2019

One month after date pay to me or my order, the sum of rupees ten thousand only, for value received

Accepted

(Signed)

Mr. W (Drawee)

July 10, 2019

J.P Nagar, Bengaluru

560078

(Signed)

Mr. Y

Brigade Road, Bengaluru

560001

Question - 16 : - A bill of exchange must contain an unconditional promise to pay. Do you agree with a statement?

Answer - 16 : -

The Negotiable Instrument Act, 1881 defines bill of exchange as, “A bill of exchange is defined as an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.”

One of the most significant feature of a negotiable instrument is an unconditional order to pay. The drawee cannot add any conditions such as payment will be done only if debtors pay or business makes profit.

A bill of exchange must contain an unconditional order to pay for the following reasons:

1. To avoid any kind of conflict at the time of payment

2. To provide security to the creditor and also bound the debtor to pay the amount.

3. To comply with The Negotiable Instruments Act, 1881.

Question - 17 : - Briefly explain the effects of dishonour and noting of a bill of exchange.

Answer - 17 : -

When the drawee of the bill of exchange is unable to complete the payment on the date of maturity of the bill, it is known as dishonour of bill of exchange. With this liability of the acceptor is re-established and he/she becomes a debtor again. To reflect the changes, the receipt of bill of exchange should be reversed.

The following entries will be made in books of holder/drawer (Nonpayment of noting charges):

Drawee A/c		Dr.
	To Bills Receivable A/c
(Bill of exchange dishonoured)

Entry in the books ofdrawee:

Bills Payable A/c		Dr.
	To Drawer
(Bill of exchange dishonoured)

Notary public charges a fee for keeping proof a dishonoured bill. These charges are beared by the drawee of the bill.

Following piece of information are noted by the notary public.

1. Amount and date of the bill

2. Possible Reason for dishonouring of bill

3. Fees charged for Noting

Entries of noting charges in the books of drawer (Payment done for noting charges):

Drawee		Dr.
	To Bills Receivable A/c
	To Cash A/c (Noting charges)
(Bill of exchange dishonoured and Noting charges paid)

In the books ofdrawee:

Bills Payable A/c		Dr.
Noting charges A/c		Dr.
	To Drawer
(Bill of exchange dishonoured and Noting charges due)

Question - 18 : - Explain briefly the procedure of calculating the date of maturity of a bill of exchange? Give example.

Answer - 18 : -

The following steps discusses the procedure of calculating bill of exchange maturity date:

1. Determine the due date of the bill as per terms of bills of exchange.

2. Grace period of three days must be added to the due date to arrive at maturity date.

For e.g., a bill having due date of 30 days (a month) is drawn on 1st August then due date is 1st September. Adding 3 grace period we arrive at bill maturity and payment due date which is on 4th October.

Calculation of Days of grace period depends on these situations:

1. Known Holidays: If due date for payment falls on a national holiday or on a Sunday, then payment need to be processed the following day. The following examples will make it easier to understand.

1. A bill that is drawn on 23rd December with due date of 23rd January, adding the grace period (3 days) the maturity date comes to 26th January. However, as 26th January is a national holiday; so, 25th January becomes the due date for payment.

2. A bill is drawn on 1st June with maturity period of a month, the due date arrived is 1st July. On adding 3 days of grace, the payment due date is 4th July. However, if 4th July is a Sunday, in this case payment needs to be completed on 3rd July.

2. Unexpected holidays: If due date for payment falls on an holiday due to emergency, then the next day becomes the day on which payment needs to be done. For example, a bill drawn on 1st May with a term of 20 days, then, adding grace period of 3 days, the payment due date becomes 24th May. But, if a nationwide strike gets declared on 24th May, then 25th May is the new due date for the payment of the bill as per rules.

Question - 19 : - Distinguish between bill of exchange and promissory note.

Answer - 19 : - The points of comparison are as follows:

Basis of Comparison	Bills of Exchange	Promissory Note
What it contains	It contains an order to pay	It contains a promise to pay
Parties	It involves three parties which are : drawer, payee and acceptor	It involves two parties and they are: maker/drawer and payee
Drawn by	Creditor	Debtor
Acceptance	Acceptance required by the debtor	Being drawn by promissor, it requires no acceptance
Payee	The same person can be payee and drawer	Promissor and Payee cannot be same
Noting in case of dishonour	Dishonouring of the instrument, leads to noting of the bill	No requirement of noting
Liability	Liability does not rest with the drawer primarily	Promissor is primarily responsible

Question - 20 : - Briefly explain the purpose and benefits of retiring a bill of exchange to the debtor and the creditor.

Answer - 20 : -

Retirement of bill of exchange happens when the holder of the bill of exchange receives a payment from acceptor before the accepted maturity date of the bill. In such cases the bill holder provides some discount to the acceptor and such a discount offered is called “rebate”.

The following are the benefits of retiring of a bill of exchange for debtor and creditor:

1. Improves the trust between two parties in transaction, namely, debtor and creditor.

2. Allows creditor to use the money for further business

3. Rebate provided by creditor becomes revenue for debtor

4. More business transactions can be conducted between two parties.

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