If a company issue Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of 5% but redeemable at premium of 5% then what amount will be debited to Loss on Issue of Debentures Account?

Given information:

• Face value of debentures = Rs. 1,00,000
• Issued at 5% discount (i.e., at Rs. 95 per debenture)
• Redeemable at 5% premium (i.e., at Rs. 105 per debenture)

Calculating the components of loss:

When debentures are issued at discount: The company receives less than face value

• Discount on Issue = 5% of Rs. 1,00,000 = Rs. 5,000

When debentures are redeemable at premium: The company has to pay more than face value at redemption

• Premium on Redemption = 5% of Rs. 1,00,000 = Rs. 5,000

Total Loss on Issue of Debentures:

Loss on Issue of Debentures Account is debited with the combined effect of both discount on issue and premium on redemption.

Total Loss = Discount on Issue + Premium on Redemption

Total Loss = Rs. 5,000 + Rs. 5,000 = Rs. 10,000

This total loss of Rs. 10,000 represents the actual financial burden on the company - it receives Rs. 95,000 at issue but will have to pay back Rs. 1,05,000 at redemption, resulting in a net loss of Rs. 10,000 (which will be written off over the life of debentures).

Answer: Rs. 10,000 (Option 2)