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:
Answer & explanation
Correct answer: option 1
The correct answer is option 1- ₹20,000.
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.