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CSEET · Fundamentals of Accounting · Introduction to Company Accounts

Kaveri Textiles Ltd issues 1,000 debentures of Rs 100 each at a discount of 5%, redeemable at par. What is the amount debited to Discount on Issue of Debentures Account?

The discount account is debited with Rs 5,000. Each Rs 100 debenture is issued at 5% discount, so Rs 5 per debenture, and for 1,000 debentures the total discount is Rs 5,000, while the cash received is Rs 95,000.

  1. ARs 5,000Correct
  2. BRs 500
  3. CRs 95,000
  4. DRs 10,000

Explanation

Discount per debenture = 5% of Rs 100 = Rs 5. For 1,000 debentures, discount = 1,000 x 5 = Rs 5,000. Rs 95,000 is the cash received, not the discount. Rs 500 results from wrongly using 1,000 x 0.5.

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