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This e-Lecture was Recorded on:

February 4 , 2013

Average Due Date


Paper 1: Accounting Chapter 7 Unit I

CA Intermediate (IPC) Course Paper 1 Accounting


Chapter 7 Unit 1
CA. S.K. Chhabra

The Institute of Chartered Accountants of India

Disclaimer Statement
1
2
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2

This lecture has been delivered by faculty members to supplement the


Study Material, Practice Manual and other content

The views expressed in this lecture are of the Faculty Member.

The content of this video lecture has not been specifically discussed
by the Council of the Institute or any of its Committees and the views
expressed herein may not be taken to necessarily represent the views
of the Council or any of its committees

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Important Notes

This e-Lecture was Recorded on:


February 4, 2013

The e-Lectures, PPT, Podcasts


and Video lectures on ICAI
Cloud Campus aim to
supplement the Study Material,
Practice Manual and
Supplementary Study Material

The lecture recordings are made


according to the syllabus and
laws existing/ applicable as on
the date of recording.

Due to changes in law, there is


likely to be some time gap
between these changes and the
recording of updated lectures.

Hence, students are advised to


refer to the Study Material
including Supplementary Study
Material, if any, and other
relevant legislation for latest
provisions/ amendments
required for forthcoming
examination.

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Learning Objectives
Average
Due Date
Account
Current
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Introduction
Also Called Zero Interest Date
Computing Average Due Date
Important Points For Noting
Practical Exam Problems

Interest Computation Methods


Features of Account Current
How to Prepare Account Current
Practical Exam Problems

Average Due Date/ Zero Int. Date

What is Average Due Date???


Equated date on which single payment may
be made in respect of several payments due
on different dates
Simply speaking, average due date is the
arithmetic average of various payment dates

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Average Due Date


Computation
An Intro.

Average Due Date Computation

Case I
Amount Lent
in One
Installment
Re-Payment
in Multiple
Installments

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Case II
Amount Lent
in Multiple
Installments
Repayment in
One
Installment

Case I: One Payment, Multiple


Equal Repayments
Calculation of Average Due Date when Amount is lent is one installment and
repayment is to be made in various equal installments
Sum of days/ months/ year
from the date of lending to the date
of repayment of Each installment
Average Due Date = Date of Loan

+
No. of Installment

Note:

The above formula is applicable only if repayment is made only in


equal installments

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Case II: Multiple Payments,


Repayment in One Installment
Calculation of Average due date when amount is lent in
various installment and repayment is made in one
installment. Computation of Average Due Date in this
case is done in following steps:
1. Take any due date as the Base Date, preferably the
earliest due date should be taken as base date.
2. Calculate the number of days from the base date to
the due date of each transaction.if the due date of
transaction is after the Base date, its number of days
should be treated as plus, but if the due date of
transaction is previous to the base date, number of
days should be marked minus.
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Case II - Continued
3. Multiply the number of days from base date by
its respective amount
4. Add up the amounts and products
5. Divide the total of the products by the total of the
amount and get the result approximately up to a
whole number.(e.g. 7.4 days are equal to 7days
and 7.52 days are equal to 8 days.)
6. Add the number of days calculated above to the
Base date and the result will be the average due
date
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Case II: Formulae

Average Due Date = Base Date + Total Product


Total Amount
If there are transactions of purchase and sale or B/R and B/P between two
parties then always take same base date and apply the following formula
Average Due Date = Base Date + Difference in Total Product
Difference in Total Amount

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Average Due Dates:


Important Points
To be Noted

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Bills Receivables/ Payables


A bills of exchange or promissory note matures

on the date on which it falls due. 3 days of grace


should always be added to the due date. Days of
grace should be added only in case of Bills
When the date on which bills of exchange is at
maturity is a public holiday, the instrument shall
be deemed to be due on the preceding business
days

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Bills Receivables/ Payables - 2


The expression public holidays includes Sunday,

April 1, 30th Sept (bank holiday), 26th January,


15th August, 2nd October, 25 December and other
holidays as per Government Gazette.
If the holiday happens to be emergency/
unforeseen holidays then the due date shall be
the next following day

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Payment Dates
If payment is made on the average due date, it

result in no loss of interest to either of the parties.


if payment is made after the due date then
interest is calculated from due date till date of
payment.
If payment is made before the Average Due
Date THEN THERE IS SAVINGS OF INTEREST.

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Different Loan & Repayment Dates

If loan is given on one date and repayment of

Loan is given of different dates, then


Interest is calculated from the date of loan till the

Average due date

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Purchase/ Sale of Goods


Between Parties
In business, if one party purchase/ sells goods to

other party, and date of payment are different,


If all payment is made on average due date, then no

interest is payable
In this case the base date of sale and purchase
transaction should be taken as same

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Month/ Days Computation

3.5 Months = 3 months and 15 days

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Average Due Date Pro-Forma


Due Date

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Days from
Base Date

Amount
(Rs.)

Product

Average Due Date Illustrations


Case Type I: One Payment, Multiple
Equal Repayments

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Illustration 1
Comprehensive Problem
May 2008 4 Marks
Case Type I: One Payment, Multiple Equal Repayments

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Problem Statement
Mr A advanced Rs 30,000/- to Mr B on 1.4.2008.
The amount is repayable in 6 equal monthly

installments commencing from 1.5.2008


Compute the Average Due Date for the loan

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Solution 1
Average Due Date

=Date of loan + Sum of months from the date


of lending to date of repayment of
each installment
No. of installments

=1.4.2008 + 1+2+3+4+5+6
6
=1.4.2008+3.5 months
=16 July 2008
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Illustration 2
Comprehensive Problem
Nov 2002 4 Marks
Case Type I: One Payment, Multiple Equal Repayments

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Problem Statement
Mr A lent 25,000 to Mr B on 1 Jan 2000.
The amount is repayble in 5 half yearly

installments commencing from 1 Jan 2001


Calculate the Average Due Date at 10% Interest
per annum

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Solution 2
Calculation of sum of period from date of each

transaction from the date of loan


1st Payment is made after 12 months from loan
2nd Payment is made after 18 months from loan
3rd Payment is made after 24 months from loan
4th Payment is made after 30 months from loan
5th Payment is made after 36 months from loan
120

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Solution 2:Continued
Average Due Date=
Date of loan + Sum of months from 1 Jan 2000 to

date of each transaction


No. of installments
=1 Jan 2000+120
5
=1 Jan 2000+24months
=1 Jan 2002

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Solution 2:Continued
Interest=25000*10/100*2
=Rs 5000

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Average Due Date Illustrations


Case Type II: Multiple Payments, One
Repayment

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Illustration 3
Comprehensive Problem
Case Type II: Multiple Payments, One Repayment

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Problem Statement
Calculate Average due date from the following
information
Date of the bill
Term
Amount
16th August, 2010
3 months 3,000
20th October, 2010
60 days
2.500
14th December, 2010
2 months 2,000
24th January, 2011
60 days
1,000
06th March, 2011
2 months 1,500

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Solution 3
Bill Date

Amount

Term

Due
Date(Inclu
ding grace)

No. of days Product=


from base
Amount*
date 19 nov Days

16 Aug 10

3000

3 Months

19 Nov

20 Oct 10

2500

60 Days

22 Dec

33

82500

14 Dec 10

2000

2 Months

17 Feb

90

180000

24 Jan 11

1000

60 Days

28 Mar

129

129000

6 Mar 11

1500

2 Months

9 May

172

258000

10000
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649500
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Solution 3:Continued
Average due date = Base date +

Total Sum of Product


Sum of Amount

= 649500/10000
= 19 Nov. 10 + 65 Days (approx)
= 23, Jan, 11

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Illustration 4
Comprehensive Problem
May 1999 4 Marks
Case Type II: Multiple Payments, One Repayment

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Problem Statement

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Mr. Green and Mr. Red had the following mutual


dealing and desire to settle their account on the
average due date:
Purchases by Green from Red:
Rs.
6th January, 2011
6,000
2nd February, 2011
2,800
31st March, 2011
2,000
Sales by Green to Red:
6th January, 2011
6,600
9th March, 2011
2,400
20th March, 2011
500
You are asked to ascertain the average due date

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Solution 4
Calculation of Average Due Date
Taking 6th January, 2011 as the base date
For Greens payments
Due Date

Amount

No. of Day from Product


the Base Date

6 January

6000

2 Febuary

2800

27

75600

31 March

2000

84

168000

10800
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243600

Solution 4:Continued
For Reds payments
Due Date

Amount

No. of Day from Product


the Base Date

6 January

6600

9 March

2400

62

148800

20 March

500

73

36500

9500

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185300

Solution 4:Continued
Average Due Date =
Base Date + Difference in Total Product

Difference in Total Amount


Base Date + 2,43,600 1,85,300

10,800 9,500
=6 Jan + 58,300/1,300
=6 Jan + 45 days (approx.)
=20 Feb 2011

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Illustration 5
Comprehensive Problem
May 2000

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Problem Statement
E owes to F the following amounts:
(i)Rs. 5,000 due on 10th March, 2011
(ii)Rs. 18,000 due on 2nd April, 2011
(iii)Rs. 60,000 due on 30th April, 2011
(iv) Rs. 2,000 due on 10th June, 2011
He desires to make full payments on 30th
June 2011 with interests at 10% per annum
from the average due date. Find out the
average due date and interest.
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Solution 5
Calculation of Average Due Date
Taking 10th March, 2011 as the base date

Due Date

For Es payments
Amount
No. of Day from Product
the Base date

10 March

5000

2 April

18000

23

414000

30 April

60000

51

3060000

10 June

2000

92

184000

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85000

3658000

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Solution 5 Continued
Average Due Date

=Base date +

Sum of Product
Sum of amounts

=10 March 2011 +


=10 March+43 days
=22 April 2011

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3658000
85000

Solution 5 Continued
Computation of Interest:
Interest to be calculated on Rs. 85,000 from

22nd April, 2011 to 30th June, 2011 at 10% p.a.


i.e. interest on Rs. 85,000 for 69 days at 10%.
= Rs. 85,000x10/100 x 69/365
= Rs. 1,607 (approx)

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Illustration 6
Comprehensive Problem
November 2010

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Problem Statement
From the following details find out the average
due date
Date of Bill
29 Jan 2009
20 March 2009
12 July 2009
10 August 2009

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Amount
5000

Term of bill
1 Month

4000

2 Months

7000

1 Month

6000

2 Months
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Solution 6
Date

Term

Due date

Amount

5000

29 Jan

1 Month

3 Mar

20 Mar

2 Month

23 May

12 Jul

1 Month

10 Aug

2 Month

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Days from
base date

Product

4000

81

324000

14 Aug

7000

164

1148000

13 Oct

6000

224

22000

1344000
2816000

Solution 6 Continued
Average due date=Base date + Sum of

Product/Sum of amounts
=3 March + 2816000/22000
=3 March + 128 days
=9 July

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Account Current
Paper 1: Accounting Chapter 7 Unit II
An Intro.

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What is Account Current?


An Account Current is a Running Statement of

Transactions between Parties


For a Given Period of Time and
Includes Interest Allowed or Charged on various

items

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Form/ Presentation of
Account Current?
Form of an Account
Copy of ledger account of the other party in the

books of the party sending the statement


An Account Current has Two Parties:
One who renders (Sends) the Account and
The other to whom the accounts is rendered.
A in account current with B.
It implies that A is the customer and the account is being
given to him by B in the books of B.

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Account Current - Exchange


Thus, When two parties have a number of

transactions between themselves, it is usual to


calculate the interest due.
The parties exchange between themselves
statement showing the various transactions in the
period concerned and interest due.
This statement is in the form of a ledger account
known as Account Current

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Account Current
Interest Computation Methods
An Intro.

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Account Current
Interest Computation Methods
Commonly Used
Ordinary Method
Product Method

Others
poque Method
Daily Interest Method

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Ordinary Method
Each item is taken separately and the number of

days from the due date of transaction to the end


of the period is calculated and interest worked out
at the agreed rate of interest for the required
period.
Note: In case of opening balance, the starting

day is included in the total number of days


For e.g. if the opening date is 1-07-2012 then days

of July will be taken as 31.

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Product Method
Instead of calculating interest separately each

item is multiplied by the number of days to the


end of period and interest is calculated on the net
product for one day.
In case of opening balance, the number of days,
includes the opening day but no interest is
computed on closing balance
Interest = Balance of Products x Rate of Interest
365 days x 100

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poque Method
In this days are calculated from date of opening

date of the statement balance till due date of


each transaction.
In this method there is no question of red in
interest.

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Daily Interest Method


In this method days are calculated from the due

date of one transaction to the due date of the next


transaction.
This method is usually used in case of banks for
calculating interest on savings balance and
current account balance

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What is RED INK interest???


In case the due date of a bill falls after the date of

closing the account, then no interest is allowed for


that. However, interest from the date of closing to
such date is written in Red-Ink in the appropriate
side of the Account current.
The interest is called Red-Ink interest.
This Red Ink interest is treated as negative interest.
In actual practice, however the product of such bill
(value of bill x (Due date- closing date of the account)
is written in ordinary ink in the apposite side on
which date the bill is entered.
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Features of Account Current


Important Points

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Account Current Features


Account Current is a statement rendered by one

party (say bank, dealer etc.) to the other party


Say - Customer, Clients etc.

It may be defined as an account of the

transactions between two parties during a


particular period in which interest is calculated at
an agreed rate on which debit and credit item and
the net balance of interest is included on the debit
or credit side of the account in the amount
column.
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Account Current Features - 2


In fact, it is a copy of ledger account of the

customer in the ledger of a dealer


It A renders account to B the heading of the account

will be B in Account Current with A.


Account Current is generally rendered by:
A banker to his client
A dealer to his customer
An agent to his principal
One Co-venture to another etc.

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Account Current Pro-Forma

Books of A
B in Account Current with A
Date

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Particu
lars

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Amount
(Rs.)

Day
s

Product

Date

Particu
lars

Amount
(Rs.)

Days

Product

How to Prepare Account


Current?
Two Steps Process

Calculation of
Days for
computing interest

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Calculation of
Interest

Computation of Days for


Computing Interest
For counting the number of days, the date of the transaction (or due date) is ignored
and the date upto which the account is prepared is included. Therefore if the date of
the transaction is 20th January and the account current is rendered on 31st March,
the number of days will be counted from 21st January upto 31st March.
When transaction are relating to bills of exchange, etc., either due date (after adding
3 grace days) or the last day of period should be considered in the calculation of
number of days

Where the account current is started with the previous balance. Both opening date
and the last date of the period are included in the number of days.

When nothing has been mentioned, the date of transaction should be taken as the
due date.

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Important Note 1
In Account current, where the rate of interest differs in

respect of debits and credits, interest should be


computed for debits and credit separately interest of
the net balance of the product should be taken to the
ledger.
The term of the bill after sight commences from the date

of acceptance of the bill, where as the term of a bill after


date commences from the date of drawing a bill.
Account Current is usually sent by
A banker to its customers
A lender to its borrower
Supplier to its customer
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Important Note 2
In the case of sale or purchase transaction, if any

credit period is allowed then only the due date


should be considered as on effective date of
transaction for e.g. If goods are sold (on 2 months
credit) on 1st June and the date of closing the
account is 30th September, the number of days
will be counted as under

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Due date is 01-08-2010


August 30 days
September 30 days
Total Days = 60 days

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Illustration 1
Comprehensive Problem
PCC May 2005 (8 Marks)

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Problem Statement

68

Make out an Account Current to be submitted by Raghuv to


Barun on 30th September, 2010, in respect of the following
transactions in the books of Raghav

July 1

Debit balance b/f

Rs 1350

July 5

Sold goods to Barun

Rs 900

July 15

Received cash from Barun

Rs 1350

August 4

Barun purchased goods

Rs 1920

August 15

Received cash from Barun

Rs 900

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Problem Statement Continued

Sept 1

Bought goods from Barun

Rs 2100

Sept 1

Paid cash to Barun

Rs 750

Sept 12

Sold goods to Barun

Rs 960

Sept 15

Paid cash to Barun

Rs 600

Interest to be taken into account at 5 per cent for annum,


calculated to nearest rupee

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Solution 1
Books of Raghav
Barun in account current with Raghav
Interest at 5% p.a upto 30 September 2010
Date

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Particulars

Amount

Days

Product

July 1

To balance

Rs 1350

92

124200

July 5

To Sales

Rs 900

87

78300

August 4

To Sales

Rs 1920

57

109440

Sept 1

To Cash

Rs 750

29

21750

Sept 12

To Sales

Rs 960

18

17280

Sept 15

To Cash

Rs 600

15

9000

Sept 30

To Interest

Rs 21

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6501

359970

Solution 1 Continued
Books of Raghav
Barun in account current with Raghav
Interest at 5% p.a upto 30 September 2010
Date

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Particulars

Amount

Days

Product

July 15

By Cash

Rs 1350

77

103950

Aug 15

By Cash

Rs 900

46

41400

Sept 1

By Purchase

Rs 2100

29

60900

Sept 30

By Balance c/d

Rs 2151

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6501

153720

359970

Illustration 2
Comprehensive Problem

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Problem Statement
Mr A owed 4000 on 1st January 04 to Mr X. The following

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transactions took place between them. It is agreed


between the parties that interest@10% p.a is to be
calculated
15 Jan 04 Mr X sold goods to Mr A
Rs 2230
29 Jan 04 Mr X bought goods from A
Rs 1200
10 Feb 04 Mr A paid cash to Mr X
Rs 1000
13 Mar 04 Mr A accepted a bill drawn by Mr
X for one month
Rs 2000
They agreed to settle their accounts on a single payment
on 15 Mar 04. Prepare Mr A in Account current with Mr X.
Ignore days of grace

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Solution 2
Mr A in account current with Mr X
Interest at 10% p.a upto 15 March 04
Date
2004

Particulars

Jan 1

To Balance b/d

Jan15

Sales

Mar13

Red Ink
Product

Mar15

To Interest

Rs

4000

2230

Days

Product

75

300000

60

Date
2004
Jan29

133800

Feb10

58000

Mar13

110

Mar15

Particulars

By Purchase

Cash
Bills
Receivable(Due
date 13 April)

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491800

Days

Product

1200

46

55200

34

34000

1000

2000

402600

Balance of
product
Balance c/d

6340

Rs

2140

6340

491800

Solution 2:Working note


Interest =402600*10*1/100*366
Red Ink Product=2000*29

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Illustration 3
Comprehensive Problem

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Problem Statement
On 2nd January 2012. Vinod opened a current account with AB
Bank with Rs 30,000 and deposited the following amounts:
15th January
Rs. 12,000
12th March
Rs. 8,000
10th May
Rs. 16,000
His withdrawals were as follows:
15th February
Rs. 26,000
10th April
Rs. 30,000
15th June
Rs. 14,000
Show Vinods A/c in the ledger of the AB Bank. Interest is to be
calculated at 5% on the debit and 2% on credit balance. The
account is to be prepared as on 30th June. 2012

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Solution 3
Date

Particulars

Jan 2

Cr

Balance

By cash A/c

30,000

30000

13

390000

Jan 15

By cash A/c

12,000

42000

31

1302000

Feb 15

To Self

16000

25

400000

Mar 12

By cash A/c

24000

29

696000

Apr 10

To Self

6000

30

May10

By cash A/c

10000

36

Jun15

To Self

4000

15

Jun30

By Interest

140

Jun30

By Balance c/d

3,860

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Dr

26,000
8,000
30,000
16,000
14,000

70000

70000

Days

Dr
Product

Cr
Product

180000
360000
60000

3860

240000

78

3148000

Illustration 4
Comprehensive Practical Problem

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Problem Statement
From the information given below, prepare an account current to be

rendered by Ram to Shyam upto 31st December, 2011. Interest is to be


calculated at 10% p.a.

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August 2,

August 20, Sight draft(bank draft) received from Shyam 450

October 10, Shyam purchased goods on one months credit 2,000

October 25,

Cash received from Shyam

November 2,

Goods returned by Shyam

November 30,

Cash sent to Shyam

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Goods sold to Shyam

900

1,500
300
1,000

Solution 4
Shyam in account current with Ram
Interest to 31 December 2011 at 10% p.a
Date
2011

Particulars

Days

Intere
st

2 Aug

To Sales

151

37.25

10 Oct

To Sales due
date 10 Nov

51

28

30 Nov

To cash

31 Dec

To Interest
(Contra)

31

8.5

Amt

Date
2011

Inter
est

By Cash

67

27.5

2 Nov

By Return
Inward

59

31 Dec

By balanceInterest(Contra)

2000

25 Oct

By Bank

4.87

73.75

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3925

1500

300

25
1675

Balance c/d

81

Amount

16.38 450

2 Aug

25

Days

133

900

1000

Particulars

73.75

3925

Thank You

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