sivaram (Asst Mgr-Taxation) (6918 Points)
24 January 2011Dear students
Kindly explain the highlighted Answer in detail and discloure amount in Balance Sheet as I am weak in Basics and cant understand Bills Receivable and Bills Payable adjustment
Kindly provide detail explanation to a layman like me to understand the same
Thanks in advance
Manmohan ACA, CS
(Chartered Accountant )
(14243 Points)
Replied 24 January 2011
A Ltd. is absorbed by B Ltd. hence all the B/P and B/R accepted and drawn respectively by outsiders shall be added but Bills accepted by A ltd on B Ltd. and held by B Ltd or vice versa shall be eliminated, as it represent inter-company liability. but in the given case since A ltd has already discounted rs.20000, so it don't represent inter- company liability so it CAN NOT be eliminated , further since the Bill discounted by A ltd is originally drawn absorbed B Ltd, in case of dishonour of these bill, (even the bank will call A ltd to pay off the liability , A ltd can recover it from B Ltd ), so NO contingent liability shall be shown in Balance sheet of A & B ltd. (after absorption )
In the Books of A & B ltd. (after absorption )
| Liabilities | rs. | Assets | rs. |
| Bills payable |
|
Bills Receivable |
|
| A Ltd. | 50000 | A Ltd. | 20000 |
| B Ltd. | 10000 | B Ltd. | 20000 |
| 60000 | 40000 |
Foot Note to Balance sheet
NO Contigent Liablities for Bills Recivable Discounted
Note: Bills Receivable in A Ltd were all discounted with Bank and therefore now Bltd is liable towards third party, i.e Bank.Hence Liability towards Bill Payable of Bltd is not cancelled
sivaram
(Asst Mgr-Taxation)
(6918 Points)
Replied 24 January 2011
Thanks Mr Manmohan for the valuable reply given
CAclubindia
