Discounting of Bills and Re-discounting of Bills:

❖ Commercial banks offer finance to clients through buying their bills for a discount
generally known as "Agio".
❖ The Agio is composed of two elements: the credit bank interest and the bank
charges and commissions.
❖ Thus, the clients accept the Agio charge in return for getting funds from banks; while
banks wait until maturity of the discounted bills where the bills are collected, thus,
banks realize an income represented by the difference between the face value of the
discounted bills and the reduced amount paid to clients at the date of discounting.
❖ A commercial bank before accepting to discount a bill shall assess or evaluate the risk
associated with it.
❖ The calculation of bank credit interest from the date of discounting to the date of
maturity is subject to certain conditions:
a) The rate is decided by the Central Bank;
b) The period is calculated in days, then divided by 360 days;
c) If collection is made by the same branch: add 1 day + court vacations;
d) If collection is made by other branches or correspondents in Cairo or Alex: add 3
days + court vacations;
e) collection is made by other branches or correspondents in other cities & towns:
add 5 days + court vacations.
❖ Commercial banks normally deduct an amount to be kept until maturity date as an extra
precautionary element, this is known as "Discounted Bills Margin". This margin shall be
added to the credit current account of the client after collection of the discounted
bills.
❖ Commercial banks may, for liquidity reasons, rediscount the bills with the Central
Bank where they will accept a charge known as "Re-discounting Agio". Yet the
discounted bills margin shall remain until a notification of collection is received from
the Central Bank of Egypt.
Exercise
The following operations were done by the National Bank-Sherif Branch during the month of
Jan.,2019:
1. Received from Bani Swaif branch bills of exchange under collection L.E.15,000.
2. Collected in cash the bills received from Bani Swaif branch.
3. Made protest on dishonoring of discounted bills previously sent by Zagazig branch
L.E.6,000, protest charges L.E.22, stamp tax L.E.8, margin 23%.
4. Collected bills deposited as security by Mr. Hassan in the amount of L.E.80,000, the loan
offered was L.E.45,000 sine 4 months, interest rate is 15%.
5. Received a notification from Bank Misr-Sohag of dishonoring of bills as security sent for
collection L.E.80,000, protest charges L.E.25, stamp tax L.E.10. The loan offered was
L.E.50000 since 6 months at an interest rate of 12% annually, the client Mr.Hani has settled
the amounts due in cash promptly, correspondent's commission at 0.125‰.
6. Sent bills deposited for acceptance by Mr.Hussin to Alex Bank- Borg EL-Arab L.E.120,000.
Bank charges and commissions at 1/8%, correspondent's commission 1/12%. The bills were
accepted and restored back.
7. Received 2 bills under acceptance & returning back, and a request for deposit under
collection, from 2 clients, as follows:
Client name Amount of bill Receiving bank Date of maturity
Hayena 15,000 Toukh branch 31st Aug, 2020
Jackal 30,000 Luxor branch 21st Sep, 2021
❖ Bank charges & commissions at 2%, minimum charge L.E. 250; maximum charge L.E. 500.
❖ The two bills were sent to branches for acceptance and collection, accepted by the drawees,
and held by the two branches for collection.
❖ Bank charges & commissions for collection at 1%. On maturity, both bills were dishonored,
protest charges at 1/2% and stamp tax at 1/4 %.
8. Received bills under acceptance & returning from Bank Misr- Tahta L.E.90,000, the bills
were returned back after being accepted together with a debit memo of the bank's
commission at 0.05 %.
9. Discounted two bills of L.E.50,000 and L.E.40,000 respectively deposited by Mr.Nabil on
10th Jan .the first is due 10/04/19 and the second is due 08/06/19. Bank charges &
commissions at 0.1 %, the margin at 25%.
❖ The first bill is sent to a branch in Rasheed City;
❖ The second is sent to a branch in Alex-Moharam Beik branch. Rate of discounting 10%.
10. The department has discounted 2 bills on 11TH Jan., 2019 as follows:
Client name Amount of bill Collecting bank Date of maturity
Bison 48,000 Same branch 31st Jan, 2020
Bull 34,000 Tahta branch 15st Aug, 2021
➢ Bank charges and commissions at 1%, discounting rate 16 %, the margin at 20%.
➢ The first bill was rediscounted with the Central Bank for a rediscounting agio L.E. 280. This
bill was dishonored, protest charges 25, stamp tax 15.
➢ The second bill was sent to Tahta branch for collection. It was then collected by that branch.
11. Rediscounted a bill of L.E.200,000 on Jan., 29,2019 due sept.,15 2020 with the Central
Bank at a rediscounting rate of 8%. The bill was originally discounted by Mr.Salem on 15th
Sept 2018, Margin 25%.
12. Received a notification from the Central Bank of dishonoring of a rediscounted bill of
L.E.100,000 previously received from client Ibrahim, protest charges L.E.20, stamp tax
L.E.10, the margin at 30%.

Required: Journalize the above events in the books of The National Bank- sherif branch.
Preliminary calculations
1) Calculating the amount due on Hayena
• Protest charge = 15,000x 1/2%= 75
• Stamp tax = 15,000x 1/4%= 37.5
• Bank commission for collection = 15000x 1%= 150 , Total = 262.5
2) Calculating the amount due on Jackal
• Protest charge = 30,000x 1/2%= 150
• Stamp tax = 30,000x 1/4%= 75
• Bank commission for collection = 30,000x 1%= 300 , Total = 525
3) Calculation of agio for Mr. Nabil
1- Calculation of interest for the first bill:
a) Calculating the period from the date of discounting to the date of maturity i.e.,
10/1/2019 to 10/4/2019:

Jan., period 10/1 to 31/1 22 day

Feb 28
March 31
April 10
Total 91 days
• Total of days = 91 days, collecting bank is other branch in Rasheed five days shall be
added
• Total period = 91days + 5day = 96 days.
a) Interest = L.E.50,000 x 10% x 96/360 = L.E.1333
2- Calculation of interest for the second bill:

a) Calculating the period from the date of discounting to the date of maturity i.e.,
10/1/2019 to 8/6/2019:

Jan., period 10/1 to 31/1 22 day

Feb 28
March 31
April 30
Mai 31
June 8
Total 150 days

• Total of days = 150 days, collecting bank is other branch in Alex city three days shall
be added
• Total period = 150 days + 3day = 153 days.
b) Interest = L.E.40,000 x 10% x 153/360 = L.E.1700
• Total interest due on Mr. Nabil = 1333 + 1700=L.E 3033
• Bank charges & commissions = L.E.90000 x 0.1% = L.E.90
• Agio= L.E. 3033 + L.E.90 = L.E.3,123
Calculation of Margin

• Margin of the first bill = L.E.50000 x 25 %= L.E.12,500

• Margin of the second bill = L.E.40000 x 25 %= L.E.10,000
• Total margin = 12,500+10,000= L.E 22,500

Net amount paid to client Mr.Nabil = L.E.90000 – (L.E. 3,123 + L.E. 22,500) = L.E.64,377

1) Calculation of agio for Mr. Bison

i) Calculation of interest
• Calculating the period from the date of discounting to the date of maturity i.e., 11/1/2019
to 31/1/2020:

Jan., period 11/1 to 31/1 21 day

+ one year 360
Total 381 days
• Total of days = 382 days, collecting bank is same branch one day shall be added
• Total period = 381 days + 1day = 382 days.
• Interest = L.E.48,000 x 16% x 382/360 = L.E.8,149
• Bank charges & commissions = L.E.48,000 x 1% = L.E.480
• Agio= L.E. 8,149 + L.E.480 = L.E.8,629
2) Calculation of agio for Mr. Bull
ii) Calculation of interest
• Calculating the period from the date of discounting to the date of maturity i.e., 11/1/2019
to 15/8/2021:

Jan., period 11/1 to 31/1 21 day

Feb 28
March 31
April 30
Mai 31
June 30
July 31
August 15
+ 2 years 720
Total 937

• Total of days = 938 days, collecting bank is other branch in Tanta five days shall be
added
• Total period = 937days + 5day = 942 days.
• Interest = L.E.34,000 x 16% x 942/360 = L.E.14,234.67= 14,235 app.
• Bank charges & commissions = L.E.34,000 x 1% = L.E.340
• Agio= L.E. 14,235 + L.E.340 = L.E.14,575
3) The period of re – discounted bill= 3+ 28 + 31+ 30 + 31+ 30+ 31+ 31 +15= 230 day
 Journal entries in the books of the National Bank- Sherif Branch:
The accounts Dr. Cr.
1- Bills under collection a/c 15,000
Beni sweif branch a/c " bills for collection" 15,000
To record receiving of bill from Bani Swaif branch for collection .
2- Cash a/c 15,000
Bani Swaif Branch a/c 15,000
To record collecting of bill sent by Bani Swaif branch.
3- Zagazig Branch a/c 30
Protest charge a/c 22
Stamp tax a/c 8
To record the protest charge and stamp tax for dishonored bill received from
Zagazig branch.
Cash a/c 80,000
4- Debit Current Account- Mr. Hassan a/c 45,000
Credit Interest a/c 2250
(45,000 x 4/12 x 15%)
Credit Current Account- Hassan a/c 32,750
To record collection of the bills on maturity, settlement of the debit current
account, recording of interest income, and adding the rest to the clients credit
current account.
5- Cash a/c 53,035
Correspondent commission a/c 100
(80,000x 0.125‰)
Debit current a/c " Hani " 50,000
Credit interest a/c 3000
(50,000 x 12% x 6/12)
Correspondent a/c " Bank Misr- Sohag " 135
To record the dishonoring of bill a security and settling of the amount of loan
and interest and protest charge from "Mr. Hani" .
6- Bills under Acceptance & Returning a/c 120,000
a. Depositors of Bills under Acceptance& Returning a/c 120,000
The memo entry to record bills received for acceptance and returning
back.
Credit Current Account- Hussin a/c 150
b. Bank charges & commissions a/c 150
(120,000x 1/8%)
To charge Hussin's a/c with charges & commissions a/c.
Correspondents – Alex bank (bills under acceptance) a/c 120,000
c. Bills under Acceptance &Returning a/c 120,000
The memo entry to record the sending of bills to branch and
correspondent for acceptance.

d. Correspondent Commissions Exp. a/c 100

Correspondents (Alex Bank- Borg EL-Arab) a/c 100
(120,000x 1/12%)
To record the correspondent's commission
 The accounts Dr. Cr.
Depositors of Bills under Acceptance& Returning a/c 120,000
e. Correspondents – Alex bank (bills under acceptance) a/c 120,000
To reverse the memo entry after restoring the bills after being accepted
7- Bills under Acceptance & Returning a/c 45,000
a. Depositors of Bills under Acceptance& Returning a/c 45,000
The memo entry to record bills received for acceptance and returning
back.
Toukh branch a/c (bills under acceptance) 15,000
b. Luxor branch a/c (bills under acceptance) 30,000
Bills under Acceptance &Returning a/c 45,000
The memo entry to record the sending of bills to branch and
correspondent for acceptance.
c. Credit Current Account- hayena a/c 300
(15,000x 2%)
Credit Current Account- jackal a/c 500
(30,000x 2%) = 600
Bank charges & commissions a/c 800
To charge Hayena and Jackal's a/c with charges & commissions a/c.
d. Depositors of Bills under Acceptance& Returning a/c 45,000
Toukh branch a/c (bills under acceptance) 15,000
Luxor branch a/c (bills under acceptance) 30,000
To reverse the memo entry after restoring the bills after being accepted.
Credit Current Account- Hayena a/c 262.5(1)
e. Toukh Branch a/c 112.5
Bank commission a/c 150
To record dishonoring of bill under collection and uploading the client with the
protest charge, stamp tax and bank commission.
Credit Current Account- jackal a/c 525
Luxor Branch a/c 225
f. Bank commission a/c 300
To record dishonoring of bill under collection and uploading the client with the
protest charge, stamp tax and bank commission.
8- Bills under Acceptance &Returning a/c 90,000
a. Local banks – Misr bank – Tanta a/c (bills under acceptance) 90,000
The memo entry to record the receiving of bills from Bank Misr- Tahta
b. Local banks a/c " Misr bank – Tahta " 45
Bank commission a/c 45
(90,000x 0.05%)
To record bank commission due on Misr bank – Tahta branch.

c. Local banks – Misr bank – Tanta a/c (bills under acceptance) 90,000
Bills under Acceptance &Returning a/c 90,000
To record returning back of bill after the acceptance of bill by the
drawee.
 The accounts Dr. Cr.
9- Discounted bill a/c 90,000
Agio a/c 3,123(3)
a. Discounted margin 22,500(4)
Cash a/c 64,377(5)
To record discounting of two bills of client "Nabil"

Rasheed Branch a/c (discounted bills) 50,000

b. Alex Branch- Moharam Beik a/c (discounted bills) 40,000
Discounted Bill a/c 90,000
To record sending of discounted bill of client "Nabil " to Moharam Beik- Alex
Branch and Rasheed branch.
10- Discounted bill a/c 48,000
Agio a/c 8,629(6)
Discounting margin 9600
a. (48,000x 20%)
Cash a/c 29,771
To record discounting of bill of client "Bison "

Discounted bill a/c 34,000

Agio a/c 14,575(7)
b. Discounting margin 6800
(34,000x 20%)
Cash a/c 12,625
To record discounting of bill of client "Bull"

c. Tahta branch a/c (discounted bills) 34,000

Discounted Bill a/c 34,000
To record sending of discounted bill of client "Bull " to Tahta branch.

Cash a/c 47,720

d. Re discounting Agio a/c 280
Discounted bill a/c 48,000
To record re-discounting of client "Bison" bill.

Credit current – Bison a/c 38,440

e. Discounting margin a/c 9600
Central bank a/c 48,040
To record dishonoring of client "Bison" bill that was rediscounted with the
Central Bank.
Tahta branch a/c 48,000
f. Tahta branch a/c (discounted bills) 48,000
To record collection of client "Bull" bill by our branch in Tahta.
 The accounts Dr. Cr.
Discounting margin a/c 6800
g. Credit current – Bull a/c 6800
To transfer the margin of the collected bill to client "Bull" credit current
acc’t.
11- Cash a/c 189,778
Re discounting Agio a/c 10,222
(200,000x 230(8)/360x 8%)
Discounted bill a/c 200,000
To record re-discounting of client "Salem" bill.

Credit Current Account- Client "Ebrahim" 70,030

12- Discounted Bills Margin a/c 30,000
(100,000x 30%)
Central bank a/c 100,030
To record dishonoring of client "Ebrahim" bill that was rediscounted with the
Central Bank.