The following journal entry appears in the books of XYZ Co. Ltd.
Bank A/c Dr. 4,80,000
Loss on issue of debentures A/c Dr. 1,50,000
To 12% Debentures A/c 6,00,000
To Premium on Redemption of Debenture A/c 30,000
Calculate the rate at which debentures have been issued at a discount.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 20%
When debentures are issued at a discount and are also redeemable at a premium, Loss on Issue of Debentures is debited with both: the discount on issue and the premium payable on redemption. The rate of discount comes from the discount alone.
Nominal value of the debentures = Rs. 6,00,000
Loss on issue debited = Rs. 1,50,000
Premium on redemption credited = Rs. 30,000
Discount on issue = Rs. 1,50,000 − Rs. 30,000 = Rs. 1,20,000
Rate of discount = 1,20,000 / 6,00,000 × 100 = 20%
The Bank entry confirms it: Rs. 4,80,000 received against a nominal value of Rs. 6,00,000 is a discount of Rs. 1,20,000. Treating the whole Rs. 1,50,000 as discount gives 25%, which forgets the premium on redemption inside it.
NCERT (2026-27 edition):
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