Renewal of The Bill

5.5.2 Renewal of The Bill 

There are certain instances when the drawee is in a position to foresee that he wouId not be able to honour the bill on the due date. In such a situation the drawee can request the drawer 'for extension of time. If the drawer agrees to such a request the old hill is mated as dirhonoured and a new bill is drawl, in Lieu thereof. This process is called 'Renewal of Bill'. In case of renewal, the drawer will charge some interest for the period of the new bill. This jnterest may be paid in cash or included in the mount of the new bill. There is no need for jetting the bill noted since the drawee himself makes a request for cancellation of the bill. The journal entries passed at Be time of renewal of the bill are as follows :

Note: Dishonour enby is passed keeping in view whether the bill is retained, discounted or endorsed.

Look at illustrations 3,4 and 5 and see how the journal entries are recorded in the books of various parties when the bill is renewed.

 illustration 4

Sohan drew on Mohan a bill for Rs. 1,500 for 3 months on June 1, 1987. The bill was endorsed to Rohan, On July 15, Mohan approaches khan to tenow the bill for a period of three tnonths and charges Rs. 25 as interest. Sohan agress to renew the bill. Mohan pays the arr,ount of interest in cash and accepts a new bill for Rs. 1,500. The bill is honoured on the due date. Record these transactions in the books of various parties.

Illuslsatlon 5 

 On January 1,1988 B owcs'to A Rs, 1,000. A draws on him a bill for Rs. 1,000 for three months, The bill is discot~nted for Rs. 980. On the date of maturity B requests A for renewal of the bill. A agrees to his request and the following maqsement is made. 

B pays Rs. 400 in cash and requests for dle renewal of the balance for two months, charging interest @ 6% pa, to be included in the new bill.

B becomes' insolvent on June 2,'1988 md only one third of the amount could 6s recovered , horn his estate,

 Record the above transactions in the books of A and B.

Illustration 6

On April 1, 1987 Y owes to X Rs. 1,200, On the same date X drew two bills for Rs. 800 and Rs. 400 for two months and three nionths respectively. The first bill was endorsed to Z on April 5 and the second bill was retained. Both the bills were retired. On May 1,1987, Y got a rebate of 6% p.a, on both the bills. Record the above transactions in the books of X,Y and Z