The following journal entry appears in the books of X Co. Ltd.-
Bank A/c Dr. 4,75,000
Loss on issue of debenture A/c Dr. 75,000
To 12% Debentures A/c 5,00,000
To Premium on Redemption of Debenture A/c 50,000
Debentures have been issued at a discount of:
Answer & explanation
Correct answer: option 3
The correct answer is option 3- 5%.
The following Journal entry for the issue at discount and redemption at premium-
1) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
2) Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr. (with discount on issue plus premium on redemption)
To Debentures A/c (with nominal value of debenture)
To Premium on Redemption of Debentures A/c (with premium on redemption)
(Allotment of debentures at a discount and redeemable at premium)
So, debentures nominal value = 5,00,000
Discount on Issue = Loss on Issue - Premium on Redemption
Discount = 75,000 - 50,000
= 25,000
Discount percentage = 25,000/5,00,000 x 100
= 5%