Debenture Application & Allotment A/c Dr. 95,000
Loss on issue of debenture A/c Dr. 10,000
To 9% Debentures A/c 1,00,000
To Premium on Redemption of Debenture A/c 5,000
On the basis of the above entry, determine the rate of discount at which ₹1,00,000, 9% debentures of ₹ 100 each were issued if they were to be redeemed at a premium of 5%.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 5%
When debentures are issued at a discount and redeemed at a premium, Loss on Issue of Debentures Account is debited with the discount plus the premium payable on redemption. So the discount is the loss minus the premium.
Loss on issue of debentures = Rs. 10,000
Premium on redemption (5% of Rs. 1,00,000) = Rs. 5,000
Discount on issue = Rs. 10,000 − Rs. 5,000 = Rs. 5,000
Rate of discount = Rs. 5,000 ÷ Rs. 1,00,000 × 100 = 5%
The same answer comes from the debit to the application account: the company received Rs. 95,000 for debentures of Rs. 1,00,000, a shortfall of Rs. 5,000. Reading the whole Rs. 10,000 as the discount gives 10%, which forgets that half of the loss is the premium on redemption.
NCERT (2026-27 edition):
NCERT (2026-27 edition):
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