Issue of ₹1,00,000, 9% debentures of ₹100 each at discount of 15% but redeemable at premium of 5%. The amount debited to loss on issue of debenture account is:

₹20,000

The correct answer is option 1- â‚¹20,000.

Discount on issue = 1,00,000 x 15/100
                          = 15,000

Premium on redemption = 1,00,000 x 5/100
                                   = 5,000

Journal entry on the issue of debentures at discount and redeemable at premium is as follows-

1) Bank A/c Dr.   85,000
       To Debenture Application & Allotment A/c  85,000
(Receipt of application money)

2) Debenture Application & Allotment A/c  Dr.  85,000
     Loss on Issue of Debentures A/c          Dr.  20,000 (15,000 + 5,000)
         To Debentures A/c                                                1,00,000
         To Premium on Redemption of Debentures A/c        5,000
(Allotment of debentures at a discount and redeemable at premium)

Thus, amount to be debited to loss on issue of debenture account is 20,000.