CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures
Meera Ltd issued 2,000 10% debentures of Rs 1,000 each at a 5% discount, redeemable at a 10% premium after five years. The total loss on issue of debentures to be written off over the life is:
The loss on issue of debentures is Rs 3,00,000. Debentures of Rs 20,00,000 are issued at a 5% discount, giving Rs 1,00,000, and will be redeemed at a 10% premium, giving Rs 2,00,000. Both amounts are losses to the company and together are written off over the term.
- ARs 3,00,000Correct
- BRs 2,00,000
- CRs 1,00,000
- DRs 4,00,000
Explanation
Face value = 2,000 x 1,000 = Rs 20,00,000. Discount on issue = 5% = Rs 1,00,000. Premium on redemption = 10% = Rs 2,00,000. Total loss = Rs 3,00,000. Taking only the premium gives Rs 2,00,000, which omits the discount.
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