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

In this case the debentures have been issued at a discount of 5%. What is the rate of premium on redemption of debentures?

10%

The correct answer is option 4- 10%.

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, Premium on Redemption = 50,000

Premium percentage = 50,000/5,00,000 x 100
                               = 10%