Question

Novelty Ltd. issued 3,000, 11% Debentures of Rs 500 each at Rs 450 per debenture. 11% Debentures Account will be credited by:

• A. Rs 13,50,000
• B. Rs 3,00,000
• C. Rs 15,00,000
• D. Rs 33,00,000

Hint:

Debentures Account is credited at face value: 3,000 x Rs. 500. The discount goes to a separate debit account.

Answer 1

The Correct Option is C

Step 1: Recall the rule:
A company always credits the Debentures Account with the nominal (face) value of the debentures issued.
If debentures are issued below face value, the shortfall is a loss, shown as a debit to Discount on Issue of Debentures Account.

Step 2: Find the nominal value:
Nominal value = number of debentures x face value = 3,000 x 500 = Rs. 15,00,000.
The issue price of Rs. 450 per debenture does not change this credit.

Step 3: Find the cash received and the discount:
Cash received = 3,000 x 450 = Rs. 13,50,000.
Discount on issue = Rs. 15,00,000 - Rs. 13,50,000 = Rs. 1,50,000, that is 3,000 x 50.

Step 4: Entry:
Bank A/c Dr. Rs. 13,50,000 and Discount on Issue of Debentures A/c Dr. Rs. 1,50,000.
To 11% Debentures A/c Rs. 15,00,000. The debit side Rs. 13,50,000 + Rs. 1,50,000 equals Rs. 15,00,000.

Step 5: Why the other options are wrong:
Option (A) Rs. 13,50,000: this is the cash received (3,000 x 450). The Debentures Account is credited at face value, so the Rs. 1,50,000 discount is missing. Wrong.
Option (B) Rs. 3,00,000: this is 3,000 x Rs. 100. The face value is Rs. 500, not Rs. 100. Wrong.
Option (D) Rs. 33,00,000: this is 3,000 x 11 x 100. It mixes the interest rate of 11% into the product. Interest has no place in the credit. Wrong.

Final Answer:
The 11% Debentures Account is credited by Rs. 15,00,000. This is option (C).