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:
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:
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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.
Updated On: Feb 5, 2025
- rupee 10,000
- rupee 1,00,000
- rupee 1,50,000
- rupee 1,05,000
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The Correct Option is B
Solution and Explanation
The loss on issue of debentures arises due to the premium on redemption, which is charged to the Loss on Issue of Debentures account. \[ \text{Loss on Issue of Debentures} =\text {Premium on Redemption} - \text{Premium on Issue} \] \[ = (10,000 \times 10) - (10,000 \times 5) \] \[ = 1,00,000 - 0 \] \[ = rupee 1,00,000 \]
Thus, the Loss on Issue of Debentures account will be debited by rupee1,00,000.
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