Question : There was a contingent liability of Rs. 37,000 in respect of bills discounted but not matured. All the discounted bills were honoured but an acceptor of a bill of Rs. 5,000 became insolvent and fifty paise in a rupee was received. The liability of the firm on account of this bill discounted and dishonoured has not so far been recorded. The entry will be .
Option 1: Realization account debited Rs 5,000 and credited bank account Rs 5,000
Option 2: Bank account debited with Rs 2,500 and credited realization account Rs 2,500
Option 3: Both 1 and 2
Option 4: None of these
Correct Answer: Both 1 and 2
Solution : Answer = Both 1 and 2
When BIR was discounted and dishonoured, Hence the bill had to be met by the firm.
Realisation AIC Dr. 5,000
To Bank AC. 5000
[for the Payment of Bill]
Bank A/C Dr. 2500
To Realisation. A/c. 2500
[for 50% Received from his Estate]
Hence, the correct option is 3.
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