The following journal entry appears in the books of Latvion Ltd.:
The discount on issue of debentures is:
The following journal entry appears in the books of Latvion Ltd.:
The discount on issue of debentures is:
Show Hint
15 %
5 %
10 %
95 %
The Correct Option is B
Solution and Explanation
The journal entry shows: Face Value of Debentures issued (credited to 12% Debentures A/c) = Rs 5,00,000. Cash received (debited to Bank A/c) = Rs 4,75,000. The discount on issue is the difference between the face value and the issue price (cash received), when the issue price is lower. Discount = Face Value - Issue Price \[ \text{Discount} = 5,00,000 - 4,75,000 = Rs 25,000 \] The 'Loss on Issue of Debentures A/c' includes both the discount on issue and the premium payable on redemption. Loss on Issue = Discount on Issue + Premium on Redemption Loss on Issue shown = Rs 75,000 Premium on Redemption shown = Rs 50,000 Discount on Issue = Loss on Issue - Premium on Redemption = 75,000 - 50,000 = Rs 25,000. This matches our calculation. Now, calculate the discount percentage: Discount Percentage = \( \frac{\text{Discount Amount}}{\text{Face Value}} \times 100 \) \[ \text{Discount } = \frac{25,000}{5,00,000} \times 100 = \frac{1}{20} \times 100 = 5 \%\]
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