7

Average Due Date

Unit 1: Average Due Date

Question 1
A promissory note executed by Mr. X is due on 12.8.2007. What is the maturity date of the
promissory note including grace days? (2 Marks, May, 2007) (PCC)
Answer
Where the promissory note is due (including grace days) on public holiday, the preceding day
shall be the due date. Hence, the due date is 14.8.2007.
Question 2
Mr. A advanced ` 30,000 to Mr. B on 1.4.2008. The amount is repayable in 6 equal monthly
instalments commencing from 1.5.2008. Compute the average due date for the loan.
(2 Marks, May, 2008) (PCC)
Answer
Date of loan + Sum of months from the date of lending to repayment
Average due date =
No. of instalments
(1 + 2 + 3 + 4 + 5 + 6)
= 1.4.2008 +
6
= 1.4.2008 + 3.5 months = 16th July 2008
Question 3
R had the following bills receivable and bills payable against S. Calculate average due date
when the payment can be made or received without any loss or gain of interest to either party.
Bills Receivable Bills Payable
Date of the Bill Amount (`) Tenure in Date of bill Amount (`) Tenure in
months months
1.6.08 9,000 3 29.5.08 6,000 2

© The Institute of Chartered Accountants of India

 Average Due Date 7.2

5.6.08 7,500 3 3.6.08 9,000 3

9.6.08 10,000 1 10.6.08 10,000 2
12.6.08 8,000 2 13.6.08 7,000 2
20.6.08 12,000 3 27.6.08 11,000 1
Holiday intervening in the period 15th August, 2008, 16th August, 2008, and 6th September, 2008.
(4 Marks, November, 2008) (PCC)
Answer
Calculation of Average Due Date (taking base date as 12th July, 2008)
Date Due date Amount (`) No. of Days Products (`) Remarks
including days from July 12
of grace
1.6.08 4.9.08 9,000 54 4,86,000 Bills Receivable
5.6.08 8.9.08 7,500 58 4,35,000
9.6.08 12.7.08 10,000 0 0
12.6.08 14.8.08 8,000 33 2,64,000
20.6.08 23.9.08 12,000 73 8,76,000
46,500 20,61,000
29.5.08 1.8.08 6,000 20 1,20,000 Bills Payable
3.6.08 5.9.08 9,000 55 4,95,000
10.6.08 13.8.08 10,000 32 3,20,000
13.6.08 14.8.08 7,000 33 2,31,000
27.6.08 30.7.08 11,000 18 1,98,000
43,000 13,64,000
Difference of Products = ` 20,61,000 – ` 13,64,000 = ` 6,97,000
Difference of Amount = ` 46,500 – ` 43,000 = ` 3,500
Average Due Date = Differenceof Pr oducts
Base Date +
Differenceof Amount
= 6,97,000
July 12 +
3,500
= July 12 + 199.14 or 199 days
= 27th January, 2009
Note:
(i) B/R of 12.6.08 Due date changed due to holidays
(ii) B/P of 3.6.08 Due date changed due to holidays
(iii) B/P of 13.6.08 Due date changed due to holidays

© The Institute of Chartered Accountants of India

 7.3 Accounting

Question 4
Harish has the following bills due on different dates. It was agreed to settle the total amount
due by a single cheque payment. Find the date of the cheque.
(i) ` 5,000 due on 5.3.2009
(ii) ` 7,000 due on 7.4.2009
(iii) ` 6,000 due on 17.7.2009
(iv) ` 8,000 due on 14.9.2009 (4 Marks, November, 2009) (PCC)
Answer
Calculation of number of days from the base date
Due date Amount (` ) No. of days from 5.3.09 Product
5.3.2009 5,000 0 0
7.4.2009 7,000 33 2,31,000
17.7.2009 6,000 134 8,04,000
14.9.2009 8,000 193 15,44,000
26,000 25,79,000

Sum of Product
Average due date = Base date +
Sum of Amount
25,79,000
= 5.3.2009 + = 99 days
26,000
The date of the cheque will be 99 days from the base date i.e.12.6.2009. So on
12th June, 2009, all bills will be settled by a single cheque payment.
Question 5
A trader allows his customers, credit for one week only beyond which he charges interest @
12% per annum. Anil, a customer buys goods as follows:
Date of Sale/Purchase Amount (` )
January 2, 2009 6,000
January 28, 2009 5,500
February 17, 2009 7,000
March 3, 2009 4,700
Anil settles his account on 31st March, 2009. Calculate the amount of interest payable by Anil
using average due date method. (8 Marks, November, 2009) (IPCC)

© The Institute of Chartered Accountants of India

 Average Due Date 7.4

Answer
Let us assume 9th January, 2009 to be the base date:
Date of Sale Due date of Amount (` No. of days from 9th Product
payment ) January, 2009
Jan. 2 Jan. 9 6,000 0 0
Jan. 28 Feb. 4 5,500 26 1,43,000
Feb. 17 Feb. 24 7,000 46 3,22,000
March 3 March 10 4,700 60 2,82,000
23,200 7,47,000
Sum of Pr oduct
Average Due date = Base date +
Sum of amount
7,47,000
= 9th January, 2009 +
23,200
= 9th January 2009 + 32 days
i.e. 32 days from 9th January, 2009 = 10th February, 2009
Thus, average due date = 10th February, 2009
No. of days from 10th February, 2009 to 31st March, 2009 = 49 days.
Interest payable by Anil on ` 23,200 for 49 days @ 12% per annum
49 12
= ` 23,200 × × = ` 373.74
365 100
Question 6
Swaminathan owed to Subramanium the following sums :
` 5,000 on 20th January, 2009
` 8,000 on 3rd March, 2009
` 6,000 on 5th April, 2009
` 11,000 on 30th April, 2009
Ascertain the average due date. (2 Marks, May, 2010) (IPCC)
Answer
Calculation of average due date taking 20th January as the base date
Due Date Amount No. of days from 20th Product
` January
20th January 5,000 0 0

© The Institute of Chartered Accountants of India

 7.5 Accounting

3rd March 8,000 42 3,36,000

5th April 6,000 75 4,50,000
30th April 11,000 100 11,00,000
30,000 18,86,000
Total Product
Average due date = 20th January +
Total Amount
18,86,000
= 20th January +
30,000
= 20th January, 2009 + 63 days (approx)
= 24th March, 2009
Question 7
From the following details find out the average due date:
Date of Bill Amount (`) Usance of Bill
29th January, 2009 5,000 1 month
20th March, 2009 4,000 2 months
12th July, 2009 7,000 1 month
10th August, 2009 6,000 2 months
(4 Marks, November, 2010) (IPCC)
Answer
Calculation of Average Due Date
(Taking 3rd March, 2009 as base date)
Date of bill 2009 Term Due date Amount No. of days Product
2009 from the base
date i.e. 3rd
March,2009
(`) (`) (`)
29th January 1 month 3rd March 5,000 0 0
20th March 2 months 23rd May 4,000 81 3,24,000
12th July 1month 14th Aug. 7,000 164 11,48,000
10th August 2 months 13th Oct. 6,000 224 13,44,000
22,000 28,16,000

© The Institute of Chartered Accountants of India

 Average Due Date 7.6

Sum of Products
Average due date = Base date + Days equal to
Sum of Amounts
28,16,000
= 3rd March, 2009 +
22,000
= 3rd March, 2009 + 128 days
= 9th July, 2009
Working Note:
1. Bill dated 29th January, 2009 has the maturity period of one month, but there is no
corresponding date in February, 2009. Therefore, the last day of the month i.e. 28th
February, 2009 shall be deemed maturity date and due date would be 3rd March, 2009
(after adding 3 days of grace).
2. Bill dated 12th July, 2009 has the maturity period of one month, due date (after adding 3
days of grace) falls on 15th August, 2009. 15th August being public holiday, due date
would be preceding date i.e. 14th August, 2009.
Question 8
A and B are partners in a firm and share profits and losses equally. A has withdrawn the
following sum during the half year ending 30th June 2010:
Date Amount
`
January 15 5,000
February 10 4,000
April 5 8,000
May 20 10,000
June 18 9,000
Interest on drawings is charged @ 10% per annum. Find out the average due date and
calculate the interest on drawings to be charged on 30th June 2010.
(4 Marks, May, 2011) (IPCC)
Answer
Calculation of Average due date
(Base Date 15th Jan, 2010)
Date Amount No. of days Product
` `
January 15 5,000 0 0

© The Institute of Chartered Accountants of India

 7.7 Accounting

February 10 4,000 26 1,04,000

April 5 8,000 80 6,40,000
May 20 10,000 125 12,50,000
June 18 9,000 154 13,86,000
36,000 33,80,000
Total product
Average due date = Base date + × days
Total amount
33,80,000
= 15th Jan + days
36,000
= 15th Jan + 94 days (approx.)
= 19th April, 2010
Number of days from 19th April, 2010 to 30th June, 2010 = 72 days
Interest on drawings from 19th April to 30th June @10%:
72 10
= ` 36,000 × ×
365 100
= ` 710
Hence, interest on drawings ` 710 will be charged from A on 30th June, 2010.
Question 9
Mr. Black accepted the following bills drawn by Mr. White:
Date of Bill Period Amount (`)
09-03-2010 4 months 4,000
16-03-2010 3 months 5,000
07-04-2010 5 months 6,000
18-05-2010 3 months 5,000
He wants to pay all the bills on a single date. Interest chargeable is @ 18% p.a. and
Mr. Black wants to save ` 150 on account of interest payment. Find out the date on which he
has to effect the payment to save∗ interest of ` 150. Base date to be taken shall be the
earliest due date. (8 Marks, November, 2011) (IPCC)

∗
The word ‘save’ should be read as ‘earn’ for better understanding of the requirement of the question.

© The Institute of Chartered Accountants of India

 Average Due Date 7.8

Answer
Calculation of Average Due Date taking base date as 19.06.2010
Date of Bill Period Maturity No. of days from the Amount Products
date base date (`)
09.03.2010 4 months 12.07.2010 23 4,000 92,000
16.03.2010 3 months 19.06.2010 0 5,000 0
07.04.2010 5 months 10.09.2010 83 6,000 4,98,000
18.05.2010 3 months 21.08.2010 63 5,000 3,15,000
20,000 9,05,000
Total of pr oduct
Average due date = Base date +
Total of amount
9,05,000
= 19.06.2010 + = 45 days (approx.)
20,000
= 3rd August, 2010.
Computation of date of payment to earn interest of ` 150
Interest per day = [` 20,000 x (18/100)]/365 days
= ` 3,600/365 = ` 10 per day (approx.)
To earn interest of ` 150, the payment should be made 15 days (` 150 / ` 10 per day) earlier
to the due date. Accordingly, the date of payment would be:
Date of payment to earn interest of ` 150 = 3rd August, 2010 –15 days
= 19th July, 2010.
Question 10
M/s Stairs & Co. draw upon M/s Marble & Co. several bills of exchange due for payment on
different dates as under :
Date of Bill Amount(`) Tenure of Bill
12th May 44,000 3 months
10th June 45,000 4 months
1st July 14,000 1 month
19th July 17,000 2 months
Find out the average due date on which payment may be made in one single amount by M/s
Marble & Co. to M/s Stairs & Co. 15th August, Independence Day, is national holiday and
22nd September declared emergency holiday, due to death of a national leader.
(4 Marks, May 2012) (IPCC)

© The Institute of Chartered Accountants of India

 7.9 Accounting

Answer
Calculation of Average Due Date
(Taking 4th August as the base date)

Date of bill Term Due date Amount No. of days from Product
` the base date i.e.
4th August
12th May 3 months 14th August 44,000 10 4,40,000
10th June 4 months 13th October 45,000 70 31,50,000
1st July 1 month 4th August 14,000 0 0
19th July 2 months 23th September 17,000 50 8,50,000
1,20,000 44,40,000
Total of products
Average due date=Base date+ Days equal to
Total amount
44,40,000
= 4th August +
1,20,000
= 4th August +37 days = 10th September
Question 11
T owes to K the following amounts:
` 7,000 due on 15th March, 2012
` 12,000 due on 5th April, 2012
` 30,000 due on 25th April, 2012
` 20,000 due on 11 June, 2012
He desires to make the full payment on 30th June, 2012 along with interest @ 10% per annum
from the average due date. Find out the average due date and the amount of interest. Amount
of interest may be rounded off to the nearest rupee. (4 Marks, November 2012) (IPCC)
Answer
Calculation of Average Due Date taking 15th March, 2012 as the base date
Due date Amount No. of days from the base Product
date i.e. 15th March, 2012
`
15th March, 2012 7,000 0 0
5thApril, 2012 12,000 21 2,52,000
25th April, 2012 30,000 41 12,30,000

© The Institute of Chartered Accountants of India

 Average Due Date 7.10

11th June 2012 20,000 88 17,60,000

69,000 32,42,000
Total of products
Average due date = Base date + Days equal to
Total amount
32,42,000
= 15th March, 2012 +
69,000
= 15th March, 2012 + 47 days (approx.) =1st May, 2012
Interest amount: Interest can be calculated on ` 69,000 from 1st May, 2012 to 30th June,
2012 at 10% p.a. i.e. interest on ` 69,000 for 60 days at 10%p.a. =` 69,000 x 10/100 x 60/366
= ` 1,131 (approx.)
Question 12
The following transactions took place between Thick and Thin. They desire to settle their
account on average due date.
Purchases by Thick from Thin (` )
9th July, 2013 7,200
14th August, 2013 12,200

Sales by Thick to Thin (` )

15th July, 2013 18,000
31st August, 2013 16,500

Calculate Average Due Date and the amount to be paid or received by Thick.
(4 Marks, November 2013) (IPCC)
Answer
Calculation of Average Due Date
Computation of products for Thick’s payments
(Taking 9.7.13 as base date)
Due Date Amount No. of days from base date to due date Product
` `
9.7.13 7,200 0 0
14.8.13 12,200 36 4,39,200
19,400 4,39,200

© The Institute of Chartered Accountants of India

 7.11 Accounting

Computation of products for Thin’s payments (Base date = 9.7.13)

Due Date Amount No. of days from base date to due Product
date
` `
15.7.13 18,000 6 1,08,000
31.8.13 16,500 53 8,74,500
34,500 9,82,500
Excess of Thin’s products over Thick [9,82,500-4,39,200] 5,43,300
Excess of Thin’s amounts over Thick [34,500-19,400] 15,100
5,43,300
Number of days from base date to date of settlement is = = 36 days (approx.)
15,100
Hence, the date of settlement of the balance amount is 36 days after 9th July, i.e. 14th August.
Thus, on 14th August, 2013, Thin has to pay ` 15,100 to Thick.
Question 13
Define Average Due Date. List out the various instances when Average Due Date can be
used. (4 Mark, IPCC May, 2014)
Answer
In business enterprises, a large number of receipts and payments by and from a single party may
occur at different points of time. To simplify the calculation of interest involved for such
transactions, the idea of average due date has been developed. Average Due Date is a break-even
date on which the net amount payable can be settled without causing loss of interest either to the
borrower or the lender.
Few instances where average due date can be used:
(i) Calculation of interest on drawings made by the proprietors or partners of a business firm
at several points of time.
(ii) Settlement of accounts between a principal and an agent.
(iii) Settlement of contra accounts, that is, A and B sell goods to each other on different
dates.
Question 14
Kishanlal has made the following sales to Babulal. He allows a credit period of 10 days
beyond which he charges interest @ 12% per annum.
Date of Sales Amount (`)
26.05.14 12,000

© The Institute of Chartered Accountants of India

 Average Due Date 7.12

18.07.14 18,000
02.08.14 16,500
28.08.14 9,500
09.09.14 15,500
17.09.14 13,500
Babulal wants to settle his accounts on 30-9-2014. Calculate the interest payable by him using
Average Due Date (ADD). If Babulal wants to save interest of ` 588, how many days before
30.9.2014 does he have to make payment? Also find the payment date in this case.
(4 Marks, IPCC November, 2015)
Answer
Calculation of Average Due date (Taking 05th June as the base date)
Date Due Date Amount No. of days from Product
` Base date `
26.05.2014 05.06.2014 12,000 0 0
18.07.2014 28.07.2014 18,000 53 9,54,000
02.08.2014 12.08.2014 16,500 68 11,22,000
280.8.2014 07.09.2014 9,500 94 8,93,000
09.09.2014 19.09.2014 15,500 106 16,43,000
17.09.2014 27.09.2014 13,500 114 15,39,000
85,000 61,51,000
61,51,000
Average due date = 5.6.14 + = 5.6.14 + 72 days (app.) = 16.08.2014
85,000
Interest if settlement is done on 30.9.14
45
85,000 x 12% x = ` 1,258 (approx.)
365
If Babulal wants to save interest of ` 588, then he has to make the payment following days
before 30.09.2014:
= 588/1258 X 45 days (16.08.2014 to 30.09.2014) = 21 days earlier
Payment date, in the above case, will be 09.09.2014.

© The Institute of Chartered Accountants of India

 7.13 Accounting

Unit 2: Account Current

Question 1
What is meant by ‘Red-Ink interest’ in an Account Current? (2 Marks) (November, 2007) (PCC)
Answer
In an Account Current, interest is calculated on the amount of a bill from the date of
transaction to the closing date of the period concerned. In case the due date of the bill falls
after the closing date of the account, then no interest is allowed for that period. However, it is
customarily followed that interest from the date of closing to the due date is written in red ink
in the appropriate side of the Account Current. This interest is called Red-Ink Interest. This
Red-Ink interest is treated as negative interest.
Question 2
What is Account current? (2 Marks, May, 2008) (PCC)
Answer
Account current is a running statement of transactions between parties, maintained in the form
of a ledger account, for a given period of time and includes interest allowed or charged on
various items. It is prepared when transactions regularly take place between two parties. An
account current has two parties – one who renders the account and the other to whom the
account is rendered.
Question 3
Roshan has a current account with partnership firm. It has debit balance of ` 75,000 as on
01-07-2012. He has further deposited the following amounts:
Date Amount (`)
14-07-2012 1,38,000
18-08-2012 22,000
He withdrew the following amounts :
Date Amount (`)
29-07-2012 97,000
09-09-2012 11,000
Show Roshan's A/c in the ledger of the firm. Interest is to be calculated at 10% on debit
balance and 8% on credit balance. You are required to prepare current account as on 30th
September, 2012. (4 Marks, November 2013) (IPCC)

© The Institute of Chartered Accountants of India

 Average Due Date 7.14

Answer
Roshan’s Current Account with Partnership firm (as on 30.9.2012)
Date Particulars Dr Cr Balance Dr. Days Dr Product Cr
or (`) Product
(`) (`) (`) Cr. (`)
01.07.12 To Bal b/d 75,000 75,000 Dr. 13 9,75,000
14.07.12 By Cash A/c 1,38,000 63,000 Cr. 15 9,45,000
29.07.12 To Self 97,000 34,000 Dr. 20 6,80,000
18.08.12 By Cash A/c 22,000 12,000 Dr. 22 2,64,000
09.09.12 To Self 11,000 23,000 Dr. 22 5,06,000
30.09.12 To Interest A/c 457 23,457 Dr.
30.09.12 By Bal. c/d 23,457
1,83,457 1,83,457 24,25,000 9,45,000

Interest Calculation:
On ` 24,25,000x 10% x 1/365 = ` 664
On ` 9,45,000 x 8% x 1/365 = (` 207)
Net interest to be debited = (` 457)
Note: The above current account has been prepared by means of product of balances method.
Question 4
From the following particulars prepare a current account∗, as sent by Mr. Ram to Mr. Siva as
on 31st October 2014 by means of product method charging interest @ 5% p.a.
2014 Particulars `
1st July Balance due from Siva 750
15th August Sold goods to Siva 1250
20th August Goods returned by Siva 200
22nd Sep Siva paid by cheque 800
15th Oct Received cash from Siva 500
(4 Marks, IPCC November, 2014)

∗
‘Current Account’ to be read as ‘Account Current’

© The Institute of Chartered Accountants of India

 7.15 Accounting

Answer
Siva in Account Current with Ram as on 31st Oct, 2014
Dr. Cr.
` Days Product ` Days Product
(`) (`)
01.07.14 To Bal. b/d 750 123 92,250 20.08.14 By Sales 200 72 14,400
Returns
15.8.14 To Sales 1,250 77 96,250 22.09.14 By Bank 800 39 31,200
31.10.14 To Interest 18.48 15.10.14 By Cash 500 16 8,000
By Balance 1,34,900
of Products
_____ ______ 31.10.14 By Bal. c/d 518.48 ______
2018.48 1,88,500 2018.48 1,88,500

5 1
Interest = ` 1,34,900 x × = ` 18.48
100 365

© The Institute of Chartered Accountants of India