Question

Aarav Ltd. issued 10,000, 9% debentures of rupee 100 each at a premium of 5%, redeemable at a premium of 10%. Loss on issue of debentures account will be debited by:

• A. rupee 10,000
• B. rupee 1,00,000
• C. rupee 1,50,000
• D. rupee 1,05,000

Hint:

Premium on redemption increases the cost of borrowing and is charged to the Loss on Issue of Debentures account, while premium on issue provides capital gain.

Answer 1

The Correct Option is B

The loss incurred upon the issuance of debentures is attributable to the premium payable at redemption. This loss is recognized in the Loss on Issue of Debentures account. The calculation is as follows: \[ \text{Loss on Issue of Debentures} =\text {Premium on Redemption} - \text{Premium on Issue} \] \[ = (10,000 \times 10) - (10,000 \times 5) \] \[ = 1,00,000 - 0 \] \[ = rupee 1,00,000 \]

Consequently, the Loss on Issue of Debentures account will reflect a debit balance of rupee1,00,000.