Question

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:

• A. 1100 debentures
• B. 1200 debentures
• C. 1225 debentures
• D. 1960 debentures

Hint:

Always use the issue price (face value – discount/premium) to calculate the number of securities issued, not the nominal value.

Answer 1

The Correct Option is B

Step 1: Identify purchase consideration.
The purchase consideration is given as ₹ 98,000. This is the amount that the company has to pay to the vendor.

Step 2: Calculate issue price of one debenture.
Nominal value of each debenture = ₹ 100
Issued at discount of 20%
\(\Rightarrow\) Issue price per debenture = \(100 - 20% \text{ of } 100\)
= \(100 - 20 = ₹ 80\)

Step 3: Calculate number of debentures required.
Total purchase consideration = ₹ 98,000
Value received by vendor per debenture = ₹ 80
\(\Rightarrow \text{Number of debentures} = \dfrac{98,000}{80}\) \[ = \dfrac{98,000}{80} = 1225 \] Wait! Let's carefully check.

Step 4: Check options.
- If 1225 debentures are issued (Option 3), at ₹ 80 each → Vendor receives 1225 × 80 = ₹ 98,000. This exactly matches purchase consideration. Thus, the correct answer is 1225 debentures, not 1200.

Final Answer: \[ \boxed{\text{1225 debentures}} \]