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?

₹10,000

The correct answer is option 2- â‚¹10,000.

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