Chapter MCQ Test 2 — Bills of Exchange
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
A held a Rs 20,000 bill which he discounted at 12% p.a. for 3 months. The discounting charge and cash received are:
Charge Rs 600; cash Rs 19,400
Charge Rs 2,400; cash Rs 17,600
Charge Rs 600; cash Rs 20,600
Charge Rs 200; cash Rs 19,800
Explanation: Discount = 20,000 × 12% × 3/12 = 600; cash = 20,000 − 600 = 19,400.
Question 2 of 10
A discounted bill is dishonoured. The drawer must FIRST:
Repay the bank the bill amount (plus any noting charges)
Do nothing
Endorse it again
Retire it
Explanation: On dishonour of a discounted bill the bank reclaims the money from the drawer, who then recovers from the drawee.
Question 3 of 10
Why are noting charges added to the amount the acceptor owes rather than borne by the drawer?
The acceptor caused the dishonour, so he must bear the legal cost
The drawer is at fault
The notary pays them
They are income
Explanation: Noting charges arise only because the acceptor defaulted, so the cost is recovered from him.
Question 4 of 10
On renewal of a bill, interest of Rs 500 is charged and added to the new bill. In the drawer's books the interest is:
An income (Interest A/c credited)
An expense
An asset
A liability
Explanation: The drawer earns interest for waiting longer, so Interest Account is credited (income).
Question 5 of 10
A bill for Rs 12,000 due on 1 August is retired on 1 July at 12% p.a. rebate. The rebate is:
Rs 120
Rs 1,440
Rs 12
Rs 1,200
Explanation: Rebate = 12,000 × 12% × 1/12 (one month early) = 120; the acceptor pays 11,880.
Question 6 of 10
A bill endorsed to a creditor is later dishonoured. The original drawer's position is that he:
Must pay the endorsee and can recover from the acceptor
Owes nothing
Keeps the money
Pays the notary only
Explanation: The drawer remains liable to the endorsee on dishonour and then recovers the amount from the defaulting acceptor.
Question 7 of 10
The maturity date of a 60-day bill dated 5 June (counting days, +3 grace) falls on about:
7 August
5 August
4 August
8 September
Explanation: 60 days from 5 June reaches 4 August; adding 3 days of grace gives 7 August.
Question 8 of 10
A key advantage of a bill of exchange over an ordinary book debt is that it:
Is a legally enforceable, transferable instrument with a fixed due date
Never has to be paid
Earns no interest ever
Cannot be transferred
Explanation: Acceptance creates a firm, datable, negotiable obligation that can be discounted or endorsed.
Question 9 of 10
When a bill is sent to the bank merely 'for collection', until it matures the drawer should:
Transfer it to a 'Bills sent for collection' account, still his asset
Treat it as discounted
Write it off
Record income
Explanation: Collection is not a sale of the bill; the drawer still owns it, so it is shown as a bill sent for collection.
Question 10 of 10
On the SAME transaction, 'Bills Receivable' in the drawer's books corresponds to ____ in the drawee's books.
Bills Payable
Bills Receivable
Cash
Capital
Explanation: The drawer's bill receivable is the drawee's bill payable — two sides of the same accepted bill.