XYZ Ltd. has been operating in the field of FMCG products in South Indian market. However to expand its operation in northern part of India, it needs additional capital Rs 20,00,000 which is raised by issuing 10% Debenture of Rs 12,00,000 at a discount of 10% to be repayable after 6 years. The rest of the funds is raised by issuing 5% debenture of Rs 8,00,000 at 15% premium. These debentures are perpetual in nature. After six years of successful operation in northern India, company took a loan of Rs 5,00,000 from PNB against 5% debenture of Rs 8,00,000 of Rs 100 each as a collateral security. The company successfully ran its operation and managed to pay off its loan within two years.
While issuing 10% debenture of Rs 12,00,000 at 10% discount. What amount should be transferred to “Discount on issue of debenture A/c” if all amount is received in one instalment ?
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If there are so many amounts, try to identify the key amount from key words in the sentence.
Here the question asks how the discount is calculated for the debentures.
The discount is the difference between the face value and the issue price. Since the debentures are issued at a 10% discount, we calculate it as follows:
\[
\text{Discount} = 10% \times 12,00,000 = 1,20,000
\]
This amount, Rs 1,20,000, needs to be transferred to the "Discount on Issue of Debenture A/c" as per accounting rules.
