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