## Income Recognition: Renegotiations, Bills Purchased & Bills for Collection
### Renegotiation / Rescheduling of Outstanding Debts
When a bank renegotiates or reschedules a debt, it typically earns a commission for doing so. That commission must be recognised over the period covered by the renegotiated or rescheduled credit — not as a lump sum upfront.
> Principle: income recognition must match the period to which the service relates.
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### Bills Purchased (Discounted by Bank)
When a bank purchases (discounts) a bill:
- The discount is the bank's income.
- That discount income must be spread over the tenor of the bill, not taken entirely in the period of purchase.
Formula split:
| Portion | Treatment |
|---|---|
| Discount for expired period (X/12) | Recognised as income in the current period |
| Discount for unexpired period (remaining months/12) | Shown as "Other Liabilities" (deferred income) |
Rediscounting: If the bank rediscounts the bill with another bank at a lower rate, netting off of income and expense is not permitted. Both sides are shown gross. Only the net surplus is the bank's real income from the transaction.
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### Bills for Collection
The bank acts purely as an agent (collecting agent). Key rules:
1. Customer's account is credited only after the bill has actually been collected from the drawer.
2. Bank's commission becomes due only on actual collection — not on receipt of the bill for collection.
> There is a clear distinction: Bill Discounting (bank funds the customer upfront) vs Bill for Collection (bank collects on behalf of the customer — no funding, purely agency).
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### Advances Against Securities (NSC, FD, etc.)
If adequate security is available against the advance, interest may be recognised on due dates (accrual basis is acceptable).