G.S. Rai company ltd. purchased assets of the book value of Rs. 98,000 from another firm. It was agreed that purchase consideration be paid by issuing 11% debentures of Rs. 100 each. Assume debentures have been issued at discount of 20%.
Identify the number of debentures issued by the company to the vendor:
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Always use the issue price (face value – discount/premium) to calculate the number of securities issued, not the nominal value.
Step 1: Determine the purchase consideration. The purchase consideration is ₹ 98,000, representing the amount payable to the vendor.
Step 2: Compute the issue price per debenture. Nominal value per debenture = ₹ 100 Discount on issue = 20% \(\Rightarrow\) Issue price per debenture = \(100 - (20\% \text{ of } 100)\) = \(100 - 20 = ₹ 80\)
Step 3: Calculate the total number of debentures required. Total purchase consideration = ₹ 98,000 Value received per debenture = ₹ 80 \(\Rightarrow \text{Number of debentures} = \dfrac{98,000}{80}\) \[= \dfrac{98,000}{80} = 1225\] Re-verification is advised.
Step 4: Verify against available options. - Issuing 1225 debentures (Option 3) at ₹ 80 each results in: 1225 × 80 = ₹ 98,000. This amount precisely matches the purchase consideration. Therefore, the correct figure is 1225 debentures, not 1200.
