If a company issue ₹1,00,000, 9% debentures of ₹100 each at discount of 5% but redeemable at premium of 5% then what amount will be debited to Loss on Issue of Debentures Account?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- ₹10,000.
The following Journal entry for the issue at discount and redemption at premium-
1) Bank A/c Dr. 95,000
To Debenture Application & Allotment A/c 95,000
(Receipt of application money)
2) Debenture Application & Allotment A/c Dr. 95,000
Loss on Issue of Debentures A/c Dr. 10,000 (with discount on issue(5000) plus premium on redemption(5000)
To Debentures A/c (with nominal value of debenture) 1,00,000
To Premium on Redemption of Debentures A/c (with premium on redemption) 5,000
(Allotment of debentures at a discount and redeemable at premium)
Discount on issue = 1,00,000 x 5/100
= 5,000
Premium on redemption = 1,00,000 x 5/100
= 5,000
The amount will be debited to Loss on Issue of Debentures Account = Discount on issue + Premium on redemption
= 5,000 + 5,000
= 10,000