Harsh Ltd. purchased assets of the book value of Rs. 1,98,000 from Garv Ltd. It was agreed that purchase consideration be paid by issuing 16% debentures of Rs. 100 each at a discount of 10%. The number of debentures issued and journal entry for the same would be:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Number of debentures issued = 2,200; Garv Ltd Dr. Rs. 1,98,000 and Discount on Issue of Debenture A/c Dr. Rs. 22,000, to 16% Debentures A/c Rs. 2,20,000
When debentures are issued to a vendor for the purchase consideration, the number of debentures is the purchase consideration divided by the issue price, not by the face value. At a 10% discount each Rs. 100 debenture is issued at Rs. 90.
Issue price = Rs. 100 − 10% of Rs. 100 = Rs. 90
Number of debentures = Rs. 1,98,000 ÷ Rs. 90 = 2,200
Face value credited to 16% Debentures A/c = 2,200 × Rs. 100 = Rs. 2,20,000
Discount on issue = Rs. 2,20,000 − Rs. 1,98,000 = Rs. 22,000
Garv Ltd Dr. 1,98,000
Discount on Issue of Debenture A/c Dr. 22,000
To 16% Debentures A/c 2,20,000
Garv Ltd is debited because the debentures settle the amount the company owes it for the assets; the 16% rate decides only the interest later, not this entry. Dividing by the face value of Rs. 100 gives 1,980, the figure in Option (1), which forgets the discount.
Note: NTA picked this question from an NCERT (2026-27) illustration and changed the figures. Do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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