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?
Answer & explanation
Correct answer: option 4
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%