A Ltd. purchased machinery for a book value of ₹4,00,000. The consideration was paid by issue of 10% Debentures of ₹100 each at a discount of 20%. The Debenture Account will be credited by what amount?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- ₹5,00,000.
When debentures are issued at a discount, the entry will be
Vendors Dr. 4,00,000
Discount on Issue of Debenture A/c Dr. 1,00,000 (5,000 x 20)
To Debentures A/c 5,00,000 (5,000 x 100)
Thus, debenture account is credited with ₹5,00,000.
Total value to be given to vendor = 4,00,000
Debenture face value = 100 - 20% discount
= 100 - 20
= 80
Total no of debentures issued = 4,00,000/80
= 5,000