How to worked out discount under accomodation bills?
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Methods of Dealing with Accommodation Bill:
There are three common methods of dealing with accommodation Bills and they are:
(a) When one party accepts a Bill to accommodate the drawer only:
When a party, who is in urgent need of cash, approaches a business friend to raise funds through a bill of exchange. In such situation, the party, who needs cash, draws a Bill which is accepted by his friend, without any valuable consideration. The drawer can discount the Bill with a bank and the proceeds are used by him alone. At the time of maturity, the drawer pays the amount to the Acceptor, who honours the Bill.
Illustration 1:
Mr. A accepted a bill for Rs 20,000 drawn by B to enable the latter to raise funds at three months on 1st October 2004. The bill was duly discounted by B at their Bank at 6% per annum. On the due date B remitted the amount to the acceptor and the Bill was duly met. Pass journal entries in the books of both the parties.

Discount: 20,000 x 6/100 x 3/12 = Rs 300
(b) Where a Bill is drawn for mutual benefit of both the parties:
Sometimes an accommodation Bill is drawn and accepted for mutual benefit of the Drawer and Drawee. The Drawer draws a Bill and Drawee accepts it. The same Bill is discounted by the Drawer and an agreed portion of the proceeds is remitted to the Acceptor.
ADVERTISEMENTS:
The discounting charge is also shared by both the parties in the same proportion in which the collection proceeds of the Bill were shared. Before the due date, the Drawer pays his share to the Acceptor, who meets the Bill by adding his share of money.
Illustration 2:
Mr. Ram draws a Bill for Rs 15,000 on Mr. Gopal on 1st January payable three months after the date at Canada Bank, Ernakulum. The Bill after acceptance is discounted by Ram at 6% p.a. and he remits 1/3 of the proceeds to Gopal. On the due date, Ram sends the necessary amount to Gopal who meets the Bill.
Record these transactions in the journal of both the parties.

(c) Where the two parties, each drawing a Bill:
There are two parties to a Bill-the Drawer and the Drawee. Both these parties draw each a Bill of equal amount or different amount on the other. Both the parties are in need of money. For instance, Mr. A draws a Bill on Mr. B for Rs 1,000 and Mr. B draws a Bill on Mr. A for Rs 1,000. Both A and B discount their Bills with a Bank to meet their financial needs. They bear charges of their respective Bills. Both the parties honour their acceptances on the due date.
Illustration 3: (Two Bills of equal value)
Mr. A drew a Bill on B on November 1st, 2004 for an amount Rs 4,000 payable three months after that date. On the very same date Mr. A accepted a Bill for Rs 4,000 drawn by B for a period of three months. Both the parties discounted their Bills at 12% p.a. On the due date both the Bills were honoured. Make journal entries in the books of both the parties.

There are three common methods of dealing with accommodation Bills and they are:
(a) When one party accepts a Bill to accommodate the drawer only:
When a party, who is in urgent need of cash, approaches a business friend to raise funds through a bill of exchange. In such situation, the party, who needs cash, draws a Bill which is accepted by his friend, without any valuable consideration. The drawer can discount the Bill with a bank and the proceeds are used by him alone. At the time of maturity, the drawer pays the amount to the Acceptor, who honours the Bill.
Illustration 1:
Mr. A accepted a bill for Rs 20,000 drawn by B to enable the latter to raise funds at three months on 1st October 2004. The bill was duly discounted by B at their Bank at 6% per annum. On the due date B remitted the amount to the acceptor and the Bill was duly met. Pass journal entries in the books of both the parties.

Discount: 20,000 x 6/100 x 3/12 = Rs 300
(b) Where a Bill is drawn for mutual benefit of both the parties:
Sometimes an accommodation Bill is drawn and accepted for mutual benefit of the Drawer and Drawee. The Drawer draws a Bill and Drawee accepts it. The same Bill is discounted by the Drawer and an agreed portion of the proceeds is remitted to the Acceptor.
ADVERTISEMENTS:
The discounting charge is also shared by both the parties in the same proportion in which the collection proceeds of the Bill were shared. Before the due date, the Drawer pays his share to the Acceptor, who meets the Bill by adding his share of money.
Illustration 2:
Mr. Ram draws a Bill for Rs 15,000 on Mr. Gopal on 1st January payable three months after the date at Canada Bank, Ernakulum. The Bill after acceptance is discounted by Ram at 6% p.a. and he remits 1/3 of the proceeds to Gopal. On the due date, Ram sends the necessary amount to Gopal who meets the Bill.
Record these transactions in the journal of both the parties.

(c) Where the two parties, each drawing a Bill:
There are two parties to a Bill-the Drawer and the Drawee. Both these parties draw each a Bill of equal amount or different amount on the other. Both the parties are in need of money. For instance, Mr. A draws a Bill on Mr. B for Rs 1,000 and Mr. B draws a Bill on Mr. A for Rs 1,000. Both A and B discount their Bills with a Bank to meet their financial needs. They bear charges of their respective Bills. Both the parties honour their acceptances on the due date.
Illustration 3: (Two Bills of equal value)
Mr. A drew a Bill on B on November 1st, 2004 for an amount Rs 4,000 payable three months after that date. On the very same date Mr. A accepted a Bill for Rs 4,000 drawn by B for a period of three months. Both the parties discounted their Bills at 12% p.a. On the due date both the Bills were honoured. Make journal entries in the books of both the parties.

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