Nori Ltd. issued 20,000, 11% debentures of ₹ 100 each at a premium of 10%, redeemable at a premium of 5%. Loss on issue of debentures account will be debited by :
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Loss on Issue of Debentures arises when:
Debentures are issued at discount (Discount on Issue)
Debentures are redeemable at premium (Premium on Redemption)
Formula: Loss on Issue = (Discount on Issue + Premium on Redemption) × Number of Debentures
We need to calculate the amount to be debited to Loss on Issue of Debentures Account. Step 1: Understand the terms.
Number of debentures = 20,000
Face value per debenture = ₹ 100
Issued at a premium of 10% (so issue price = ₹ 110)
Redeemable at a premium of 5% (so redemption price = ₹ 105)
Step 2: Understand when Loss on Issue of Debentures arises.
Loss on Issue of Debentures Account is debited when debentures are issued at a discount or when they are redeemable at a premium (or both). In this case:
The debentures are issued at a premium (so no loss on issue)
But they are redeemable at a premium of 5%
The premium payable on redemption is a loss for the company. This loss is debited to "Loss on Issue of Debentures Account" at the time of issue and written off over the life of debentures.
Step 3: Calculate the premium on redemption.
Premium on redemption per debenture = 5% of ₹ 100 = ₹ 5
Total premium on redemption = 20,000 × ₹ 5 = ₹ 1,00,000
Step 4: Journal entry treatment.
At the time of issue:
\[
\begin{array}{ll}
\text{Bank A/c} & \text{Dr.} \quad 22,00,000 \quad (20,000 \times 110) \\
\quad \text{To Debentures Application \& Allotment A/c} & 22,00,000
\end{array}
\]
\[
\begin{array}{ll}
\text{Debentures Application \& Allotment A/c} & \text{Dr.} \quad 22,00,000 \\
\text{Loss on Issue of Debentures A/c} & \text{Dr.} \quad 1,00,000\\
\quad \text{To 11% Debentures A/c} & 20,00,000 \quad (20,000 \times 100) \\
\quad \text{To Securities Premium Reserve A/c} & 2,00,000 \quad (20,000 \times 10) \\
\quad \text{To Premium on Redemption of Debentures A/c} & 1,00,000
\end{array}
\]
The Loss on Issue of Debentures Account is debited with ₹ 1,00,000 (the premium payable on redemption).
Step 5: Analyze the options.
(A) ₹ 20,00,000 \(\Rightarrow\) Face value of debentures
(B) ₹ 1,00,000 \(\Rightarrow\) Premium on redemption ✓ Correct
(C) ₹ 3,00,000 \(\Rightarrow\) Not relevant
(D) ₹ 2,00,000 \(\Rightarrow\) Premium on issue (credited to Securities Premium)
