Debenture Application & Allotment A/c Dr. 95,000Loss on Issue of Debentures A/c Dr. 10,000To 9% Debenture A/c

Question

Debenture Application & Allotment A/c Dr. 95,000Loss on Issue of Debentures A/c Dr. 10,000To 9% Debenture A/c 1,00,000To Premium on Redemption of Debentures A/c 5,000On the basis of the above entry, determine the rate of discount at which Rs. 1,00,000, 9% debentures of Rs. 100 each were issued if th

Accepted Answer

Let's break down the components of the provided journal entry:Nominal Value (Face Value) credited to Debentures Account =

Rs. 1, 00, 000

.Premium on Redemption credited =

Rs. 5, 00, 000 \times 0.05 = Rs. 5, 000

.The total amount debited to "Loss on Issue of Debentures" (

Rs. 10, 000

) contains both the Discount on Issue and the Premium on Redemption:

Loss on Issue = Discount Amount + Premium on Redemption

10, 000 = Discount Amount + 5, 000 ⟹ Discount Amount = Rs. 5, 000

Now, calculate the rate of discount relative to the nominal face value:

Rate of Discount = \frac{Discount Amount}{Nominal Face Value} \times 100

Rate of Discount = \frac{5 , 000}{1 , 00 , 000} \times 100 = 5%

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