CBSE Class 11 Accountancy Chapter 8: Bills of Exchange NCERT Solutions

Solution: Commonly used negotiable instruments are financial documents that allow for the transfer of rights to payment. Two primary examples include:

1. Cheques: These are bills of exchange drawn on a banker, payable on demand. They are widely used for making payments in everyday transactions.
2. Bills of Exchange: These are written orders by one party to another, directing the second party to pay a specified sum of money to a third party or to the order of the second party.

Solution: Here are two key distinctions between a Bill of Exchange and a Promissory Note:

1. Nature of Instrument: A Bill of Exchange is a conditional order to pay, whereas a Promissory Note is an unconditional promise to pay.

2. Parties Involved: A Bill of Exchange typically involves three parties: the Drawer (who creates the bill), the Drawee (who accepts the bill and pays), and the Payee (who receives the payment). A Promissory Note involves only two parties: the Maker (who promises to pay) and the Payee (who receives the payment).

Solution: The essential features that define a valid Bill of Exchange are:

1. Written Document: It must be in writing, either handwritten or typed. An oral agreement does not constitute a bill of exchange.
2. Unconditional Order: It must contain an unconditional order to pay a certain sum of money. The order cannot be dependent on any contingency.
3. Signed by the Drawer: The bill must be signed by the person who draws it (the drawer). Without the drawer's signature, it is not considered a valid bill.
4. Certainty of Amount and Time: The amount to be paid must be certain and clearly stated, both in figures and words. The time of payment (e.g., on demand, after a certain period) must also be specified.

Solution: The three distinct parties involved in a Bill of Exchange are:

1. Drawer: This is the person who creates and signs the bill of exchange. They are typically a creditor who orders the drawee to pay a certain sum of money.
2. Drawee: This is the person who is ordered to pay the bill. They must accept the bill (usually by signing it) to become liable for payment. In most cases, the drawee is a debtor of the drawer.
3. Payee: This is the person to whom the payment is to be made. The payee can be the drawer themselves, or another person designated by the drawer.

Solution: The maturity of a bill of exchange refers to the specific date on which the bill becomes legally due and payable. This date is determined based on the terms stated in the bill itself. Bills can be classified based on their maturity terms, such as:

• After Date Bills: Maturity is calculated from the date the bill was drawn.
• After Sight Bills: Maturity is calculated from the date the bill was accepted or noted.
• At Sight Bills: These are payable on demand, meaning they are due for payment immediately upon presentation.

Understanding the maturity date is crucial for timely payment and avoiding legal complications. For bills payable after a certain period, 'days of grace' (usually three days) are often added to the calculated date to determine the final maturity date, unless the bill is payable on demand or at sight.