Accountancy Part AIssue and Redemption of Debentures

The following journal entry is recorded in the books of RST Ltd. on i…

The following journal entry is recorded in the books of RST Ltd. on issue of debentures :

Bank a/c Dr	18,00,000
Loss on issue of Debentures a/c Dr	6,00,000
To 14% Debentures		20,00,000
To Premium on Redemption of Debentures		4,00,000

Debentures have been issued at a discount of :

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → 10%

When debentures are issued at a discount and are redeemable at a premium, both the discount and the premium on redemption are debited to Loss on Issue of Debentures Account. So the loss of Rs. 6,00,000 is the discount plus the premium.

Loss on issue of debentures = Rs. 6,00,000

Premium on redemption = Rs. 4,00,000

Discount on issue = Rs. 6,00,000 − Rs. 4,00,000 = Rs. 2,00,000

Rate of discount = Rs. 2,00,000 / Rs. 20,00,000 × 100 = 10%

The bank entry agrees with this. The company received Rs. 18,00,000 for debentures of Rs. 20,00,000, which is Rs. 2,00,000 less than the face value.

NCERT (2026-27 edition):
Terms of Issue of Debentures – “… Notes: 1. When debentures are redeemable at a premium, the premium payable on redemption is debited to ‘Loss on Issue of Debentures A/c’. It may be noted that when debentures are issued at a discount and are redeemable at a premium, the amount of discount on issue is also debited to ‘Loss on Issue of Debentures’. It may be noted that when the debentures are issued at a discount and are redeemable at par, the amount debited to ‘Discount on Issue of Debentures A/c’ as usual.”