Question

Xiom Ltd. issued 30,000, 12% debentures of ₹ 100 each at a certain rate of discount, redeemable at 10% premium after three years. Balance in Securities Premium Account before issuing these debentures was ₹ 5,00,000, and after writing off loss on issue of debentures, the balance in Securities Premium Account was ₹ 50,000. These debentures were issued at a discount of ______.

Options

• 10%

• 12%

• 5%

• 3%

Answer 1

Xiom Ltd. issued 30,000, 12% debentures of ₹ 100 each at a certain rate of discount, redeemable at 10% premium after three years. Balance in Securities Premium Account before issuing these debentures was ₹ 5,00,000, and after writing off loss on issue of debentures, the balance in Securities Premium Account was ₹ 50,000. These debentures were issued at a discount of 5%.

Explanation:

1. Total Face Value = 30,000 × 100

= 30,00,000

2. Premium on Redemption = `30,00,000 xx 10/100`

= 3,00,000

3. Determine Total Loss Written Off:

The amount used from the Securities Premium Account to write off the “Loss on Issue of Debentures” is the difference between the opening and closing balances:

Loss Written Off = 5,00,000 − 50,000

= 4,50,000

4. Calculate Discount on Issue:

Total Loss = Discount on Issue + Premium on Redemption

4,50,000 = Discount on Issue + 3,00,000

Discount on Issue = 4,50,000 − 3,00,000

Discount on Issue = 1,50,000

5. Calculate Discount Percentage:

Discount Rate = `"Discount Amount"/"Total Face Value" xx 100`

= `(1,50,000)/(30,00,000) xx 100`

= 5%