Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of 15% but redeemable at premium of 5%, the amount debited to loss on issue of debenture account is.
Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of 15% but redeemable at premium of 5%, the amount debited to loss on issue of debenture account is.
Solution
Given:
- Face Value of Debentures = Rs. 1,00,000
- Issued at 15% discount
- Redeemable at 5% premium
Loss on Issue of Debentures includes both the discount at which debentures are issued and the premium at which they will be redeemed.
Calculation of Discount on Issue:
Issue Price = Face Value - Discount
= Rs. 1,00,000 - 15% of Rs. 1,00,000
= Rs. 1,00,000 - Rs. 15,000
= Rs. 85,000
Discount on Issue = Rs. 1,00,000 - Rs. 85,000 = Rs. 15,000
Calculation of Premium on Redemption:
Redemption Value = Face Value + Premium
= Rs. 1,00,000 + 5% of Rs. 1,00,000
= Rs. 1,00,000 + Rs. 5,000
= Rs. 1,05,000
Premium on Redemption = Rs. 1,05,000 - Rs. 1,00,000 = Rs. 5,000
Total Loss on Issue of Debentures:
Loss on Issue = Discount on Issue + Premium on Redemption
= Rs. 15,000 + Rs. 5,000
= Rs. 20,000
The company receives only Rs. 85,000 but has to repay Rs. 1,05,000 at redemption. The total loss of Rs. 20,000 is debited to Loss on Issue of Debentures Account.