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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- rupee 10,000
- rupee 1,00,000
- rupee 1,50,000
- rupee 1,05,000
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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The following journal entry appears in the books of X Co. Ltd.
\[\text{Bank A/c Dr. 4,75,000} \\ \text{Loss on Issue of Debentures A/c Dr. 75,000} \\ \text{To 12\% Debentures A/c 5,00,000} \\ \text{To Premium on Redemption of Debenture A/c 50,000} \]
In this case, the debentures have been issued at a discount of 5%. What is the rate of premium on redemption of debentures?
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- Debenture Application & Allotment A/c ........ Dr. 95,000
Loss on Issue of Debentures A/c ................. Dr. 10,000
\hspace{0.5cm} To 9% Debenture A/c ...................................... 1,00,000
\hspace{0.5cm} To Premium on Redemption of Debentures A/c .... 5,000
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