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Home Questions 44AZDTQ2RM
Target Exam

CUET

Subject

Accountancy

Chapter

Issue and Redemption of Debentures

Question:

What will be the journal entry for the issue of debenture of ₹100 at ₹98 but redeemed at a discount of ₹5 by the company?

Options:

Debenture Application & Allotment A/c Dr.  ₹100
Loss on Issue of Debentures A/c Dr.   ₹5
        To Debentures A/c                                                 ₹98
        To Premium on Redemption of Debentures A/c          ₹7
(Issue of debentures at discount and redeemed at discount)

Debenture Application & Allotment A/c Dr.  ₹100
Loss on Issue of Debentures A/c Dr.   ₹2
        To Debentures A/c                                                 ₹98
        To Loss on Redemption of Debentures A/c                ₹4
(Issue of debentures at discount and redeemed at discount)

Debenture Application & Allotment A/c Dr.  ₹98
Loss on Issue of Debentures A/c Dr.   ₹4
        To Debentures A/c                                                 ₹100
        To Loss on Redemption of Debentures A/c                ₹4
(Issue of debentures at discount and redeemed at discount)

None of these

Correct Answer:

None of these

Explanation:
Debentures can indeed be issued at a discount, which means they are sold to investors at a price lower than their face value. This discounted amount is effectively an interest expense over the life of the debenture. However, debentures are typically not redeemed (repaid) at a discount. When a company redeems its debentures, it typically repays the face value of the debenture, which is the amount initially promised to debenture holders.

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