Question

The following journal entry appears in the books of Latvion Ltd.:

Date	Particulars	Dr. Amount (₹)	Cr. Amount (₹)
	Bank A/c	4,75,000
	Loss on issue of debentures A/c	75,000
	To 12% Debentures A/c		5,00,000
	To Premium on Redemption of Debentures A/c		50,000

The discount on issue of debentures is:

• A. 15%
• B. 5%
• C. 10%
• D. 95%

Hint:

Always separate discount on issue and premium on redemption when calculating actual discount percentage.

Answer 1

The Correct Option is A

Face value of Debentures = ₹ 5,00,000
Amount received in Bank = ₹ 4,75,000
Discount on issue = ₹ 5,00,000 – ₹ 4,75,000 = ₹ 25,000
Percentage of discount = (₹ 25,000 / ₹ 5,00,000) × 100 = 5%
However, note that there’s also a Loss on Issue of Debentures of ₹ 75,000, which includes the discount plus premium payable on redemption. Premium on Redemption = ₹ 50,000
Thus, actual discount = ₹ 75,000 – ₹ 50,000 = ₹ 25,000
Therefore, the discount rate = (₹ 25,000 / ₹ 5,00,000) × 100 = 5%.
Hence, the correct answer is (B) 5%.
Final Answer: 5%