Read the following passage and answer the following question.
ABC Ltd. took over Assets of ₹6,00,000 and Liabilities of ₹40,000 of XYZ Ltd. at an agreed value of ₹6,30,000. ABC Ltd. issued 10% Debentures of ₹100 each at a discount of 10% to XYZ Ltd. in full satisfaction of the purchase price. ABC Ltd. writes off any capital losses incurred during a year, at the end of that financial year.
If the company has a securities premium reserve of ₹65,000, then how much amount will be taken from the statement of profit and loss to write off discount on debentures?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- ₹5,000.
Nominal value of debenture = ₹100
Discount is 10% i.e. 100 X 10/100 = ₹10
Issue price = 100-10
= ₹90
No of debenture issued = Purchase consideration/ issue price
= 6,30,000/90
= 7000
Discount = 7000 X 10
= ₹70,000
Securities premium reserve is of ₹65,000 so the balance (70,000-65,000) i.e. 5,000 will be taken from the statement of profit and loss.