Dear 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
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
Thanks Mr Manmohan for the valuable reply given
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