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
To solve the problem, we need to determine the discount on the issue of debentures for Latvion Ltd., given the journal entry showing a debit of Rs 75,000 to 'Loss on Issue of Debentures A/c', a credit of Rs 5,00,000 to '12% Debentures A/c', a credit of Rs 50,000 to 'Premium on Redemption of Debentures A/c', and a debit of Rs 4,75,000 to 'Bank A/c'.
1. Understanding the Journal Entry:
The journal entry indicates the issuance of debentures. The nominal value of the debentures is Rs 5,00,000 (credited to 12% Debentures A/c). The company received Rs 4,75,000 in cash (debited to Bank A/c), and Rs 75,000 is debited to Loss on Issue of Debentures A/c, which includes the discount on issue and any premium on redemption. Rs 50,000 is credited to Premium on Redemption of Debentures A/c, indicating the premium payable on redemption.
2. Calculating the Discount on Issue:
The Loss on Issue of Debentures A/c is calculated as the discount on issue plus the premium on redemption. Let the discount on issue be \( D \). Then:
\( \text{Loss on Issue} = \text{Discount on Issue} + \text{Premium on Redemption} \)
Given:
\( 75,000 = D + 50,000 \)
Solving for \( D \):
\( D = 75,000 - 50,000 = 25,000 \, \text{Rs} \)
3. Determining the Discount Percentage:
The nominal value of the debentures is Rs 5,00,000. The discount on issue is Rs 25,000. The percentage discount is calculated as:
\( \text{Discount Percentage} = \left( \frac{\text{Discount}}{\text{Nominal Value}} \right) \times 100 \)
Substitute the values:
\( \text{Discount Percentage} = \left( \frac{25,000}{5,00,000} \right) \times 100 = 5\% \)
Final Answer:
The discount on the issue of debentures is 5%. The correct option is B.
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