Debentures are issued for Rs 100000 at par but are redeemable at a premium of 10% after 5 years. At what time the entry of premium of Rs 10000 will be booked?
Answer & explanation
Correct answer: option 1
When debentures are redeemable at a premium, a provision has to be made right at the time of the issue by debiting the amount to ‘Loss on Issue of Debentures A/c’. It may be noted that when debentures are issued at a discount and are redeemable at a premium, the amount of discount on issue is also debited to ‘Loss on Issue of Debentures’. It may be noted that when the debentures are issued at a discount and are redeemable at par, the amount debited to ‘Discount on Issue of Debentures A/c’ as usual