then what amount will be debited to Loss on Issue of Debentures Account?
When a company issues debentures, any loss incurred at the time of issue needs to be recorded. The 'Loss on Issue of Debentures Account' is debited with the total loss arising from issuing debentures at a discount and the premium payable upon redemption.
Debenture Issue Loss Calculation Explained
Here's how to calculate the amount debited to the 'Loss on Issue of Debentures Account':
Step 1: Calculate the Total Number of Debentures Issued
First, determine the total number of debentures issued by the company.
- Total face value of debentures: Rs. 1,00,000
- Face value per debenture: Rs. 100
- The formula is: $ \text{Number of Debentures} = \frac{\text{Total Face Value}}{\text{Face Value per Debenture}} $ $ \text{Number of Debentures} = \frac{\text{Rs. } 1,00,000}{\text{Rs. } 100} = 1,000 \text{ Debentures} $
Step 2: Calculate the Total Discount on Issue
The debentures were issued at a 5% discount. Calculate the total discount amount.
- Discount percentage: 5%
- Discount per debenture = 5% of Rs. 100 = Rs. 5
- The formula is: $ \text{Total Discount on Issue} = \text{Number of Debentures} \times \text{Discount per Debenture} $ $ \text{Total Discount on Issue} = 1,000 \times \text{Rs. } 5 = \text{Rs. } 5,000 $
Step 3: Calculate the Total Premium on Redemption
The debentures are redeemable at a 5% premium. Calculate the total premium amount payable at redemption.
- Premium percentage: 5%
- Premium per debenture = 5% of Rs. 100 = Rs. 5
- The formula is: $ \text{Total Premium on Redemption} = \text{Number of Debentures} \times \text{Premium per Debenture} $ $ \text{Total Premium on Redemption} = 1,000 \times \text{Rs. } 5 = \text{Rs. } 5,000 $
Step 4: Determine the Amount Debited to Loss on Issue of Debentures Account
The 'Loss on Issue of Debentures Account' reflects the total financial impact of the discount and premium. It is debited with the sum of the discount on issue and the premium on redemption.
- The formula is: $ \text{Amount Debited to Loss on Issue of Debentures Account} = \text{Total Discount on Issue} + \text{Total Premium on Redemption} $ $ \text{Amount Debited} = \text{Rs. } 5,000 + \text{Rs. } 5,000 = \text{Rs. } 10,000 $
Therefore, the amount debited to the Loss on Issue of Debentures Account is Rs. 10,000.
Important Questions from Debentures
Match List–I with List–II :
List I
List II
(a)
Secured debentures (i)
are a form of long-term debt and can be referred as a debt security. (b)
Bonds (ii)
are debentures which do not carry any charge on the assets of the company. (c)
Bearer debentures (iii)
are secured by a charge on the whole or a part of assets of the company. (d)
Naked debentures (iv)
are treated as negotiable instruments and are transferable by delivery alone.
Select the correct answer using the codes given below.- G.S. Rai company ltd. purchased assets of the book value of Rs. 98,000 from another firm. It was agreed that purchase
consideration be paid by issuing 11% debentures of Rs. 100 each. Assume debentures have been issued at discount of
20%
Identify the number of debentures issued by the company to the vendor 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
In this case the debentures have been issued at a discount of 5%. What is the rate of premium on redemption
of debentures ?Debenture Application & Allotment A/c Dr. 95,000 Loss on Issue of Debentures A/c Dr. 10,000 To 9% Debenture A/c 1,00,000 To Premium on Redemption of Debentures A/c 5,000
On 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 they were to be redeemed at a premium of 5%.
