Question

On 1st October, 2024, Nirmal Ltd. issued 6,000, 11% Debentures of 100 each at a premium of 10%, redeemable at a premium of 10%. ‘Loss on Issue of Debentures’ will be:

• A. 1,20,000
• B. 60,000
• C. 6,00,000
• D. 6,60,000

Hint:

Loss on issue of debentures arises when they are either issued at a discount or redeemable at a premium. Here, the premium on redemption directly contributes to the loss.

Answer 1

The Correct Option is B

Step 1: Number of debentures = 6,000
Step 2: Face value of each debenture = 100\(\Rightarrow\) Total = \( 6,000 \times 100 = 6,00,000 \)
Step 3: Issue Price = 100 + 10% premium = 110
Step 4: Redemption Price = 100 + 10% premium = 110
Step 5: Since both issue and redemption are at premium, premium on redemption ( 10 per debenture) is considered a loss on issue of debentures.
Loss = \( 6,000 \times 10 = 60,000 \) Journal Entry at the time of issue:
Bank A/c Dr. & 6,60,000
Loss on Issue of Debentures A/c Dr. & 60,000
To 11% Debentures A/c & 6,00,000
To Securities Premium A/c & 60,000