Question

If a company issues Rs. 1,00,000, 9% debentures of Rs. 100 each at a discount of 5% but redeemable at a premium of 5%, then what amount will be debited to Loss on Issue of Debentures Account?

• A. Rs. 5,000
• B. Rs. 10,000
• C. Rs. 15,000
• D. Rs. 20,000

Hint:

Always add discount on issue and premium on redemption to calculate Loss on Issue of Debentures.

Answer 1

The Correct Option is C

Step 1: Understand the accounting treatment.
Loss on Issue of Debentures = Discount on issue of debentures + Premium on redemption of debentures.

Step 2: Calculate discount on issue.
Total Debenture Value = Rs. 1,00,000 (1,000 debentures x Rs. 100 each).
Discount = 5% of Rs. 1,00,000 = Rs. 5,000.

Step 3: Calculate premium on redemption.
Premium = 5% of Rs. 1,00,000 = Rs. 5,000.

Step 4: Total Loss on Issue.
\[\text{Loss on Issue of Debentures} = 5,000 \text{ (Discount)} + 5,000 \text{ (Premium)} = \text{Rs. } 10,000\] The problem specifies issuance at a 5% discount and redemption at a 5% premium.
- Discount = Rs. 5,000.
- Premium on redemption = Rs. 5,000.
Therefore, the total loss is Rs. 10,000.
Re-evaluation of options considering potential confusion:
If discount (Rs. 5,000) and premium (Rs. 5,000) are calculated based on the face value of Rs. 1,00,000:
- Discount: 5% of Rs. 1,00,000 = Rs. 5,000.
- Premium on redemption: 5% of Rs. 1,00,000 = Rs. 5,000.
Total Loss = Rs. 5,000 + Rs. 5,000 = Rs. 10,000.
Thus, the correct answer is Rs. 10,000.

Final Answer: \[\boxed{\text{Rs. 10,000}}\]