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The following journal entry appears in the books of X Co. Ltd.

Bank A/c Dr. 4,75,000

Loss on issue of debenture A/c Dr. 75,000

To 12% Debentures A/c 5,00,000

To Premium on Redemption of Debenture A/c 50,000

Debentures have been issued at a discount of:

Solution

✅ Correct Option: 3

Looking at the journal entry:

Cash received (Bank A/c): ₹4,75,000

Face Value of Debentures (12% Debentures A/c): ₹5,00,000

The difference between face value and cash received gives us the discount on issue.

Discount on Issue = Face Value - Cash Received

Discount on Issue = ₹5,00,000 - ₹4,75,000 = ₹25,000


To verify this, the Loss on Issue of Debentures account includes:

  • Discount on Issue
  • Premium on Redemption

Loss on Issue = Discount on Issue + Premium on Redemption

₹75,000 = Discount on Issue + ₹50,000

Discount on Issue = ₹25,000 ✓


Discount Percentage = Discount on IssueFace Value×100\frac{\text{Discount on Issue}}{\text{Face Value}} \times 100

Discount Percentage = 25,0005,00,000×100\frac{25,000}{5,00,000} \times 100 = 5%

The debentures have been issued at a discount of 5%.

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