Question

The following journal entry appears in the books of Latvion Ltd. :
\vspace{0.2cm} \begin{tabular}{|l|r|r|} \hline Particulars & Dr. Amount (Rs) & Cr. Amount (Rs)
\hline Bank A/c \hspace{5cm} Dr. & 4,75,000 &
Loss on issue of debentures A/c \hspace{1.9cm} Dr. & 75,000 &
\indent To 12\% Debentures A/c & & 5,00,000
\indent To Premium on Redemption of Debentures A/c & & 50,000
\hline \end{tabular}
\vspace{0.2cm} The discount on issue of debentures is :

• A. 15
• B. 5%
• C. 10%
• D. 95%

Hint:

Discount on issue = Face Value - Issue Price (Cash Received). Loss on Issue includes both Discount on Issue and Premium on Redemption. Always calculate percentage based on Face Value.

Answer 1

The Correct Option is B

Step 1: Identify Face Value and Cash Received:
Face Value (from 12% Debentures A/c Cr.) = Rs 5,00,000.
Cash Received (from Bank A/c Dr.) = Rs 4,75,000.
Step 2: Calculate Discount Amount:
Discount on Issue = Face Value - Cash Received
Discount = Rs 5,00,000 - Rs 4,75,000 = Rs 25,000.
*(Note: Loss on Issue (Rs 75,000) = Discount (Rs 25,000) + Premium on Redemption (Rs 50,000), which confirms the calculation).*
Step 3: Calculate Discount Percentage:
Discount Percentage = (Discount Amount / Face Value) \( \times \) 100
Discount Percentage = (Rs 25,000 / Rs 5,00,000) \( \times \) 100
Discount Percentage = 0.05 \( \times \) 100 = 5\%.
Conclusion:
The discount on issue of debentures is 5\%.