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
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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
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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 [Link] 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
35
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
41
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
70
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
71
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
73
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.
80
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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