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Question
A company issued 9% debentures of the face value of Rs. 2,00,000 at a discount of 6%. The debentures were repayable by annual drawings of Rs.40,000. Find out the amount of discount on issue of debenture for the third year?
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Solution
The correct option is C Rs. 2,400
S.No. Amount of
Debentures Used (Rs.) Ratio Discount Amount
(Rs.) 1. 2,00,000 5 12,000 x 5/15 4,000 2. 1,60,000 4 12,000 x 4/15 3,200 3. 1,20,000 3 12,000 x 3/15
2,400 4. 80,000 2 12,000 x 2/15 1,600 5. 40,000 1 12,000 x 1/15 800 15 Total 12,000
When the debentures are redeemed at the end of a specific period, the discount on such debentures is spread evenly and so, equal amount is written off as discount every year. However, as in this case, when the debentures are redeemed by annual drawings with equal intervals, then the discount is written off in the proportion of debentures used.Total DIscount= 2,00,000 x 6% = 12,000
So, the amount of discount to be written off for the third year is Rs. 2,400.
| S.No. | Amount of Debentures Used (Rs.) | Ratio | Discount | Amount (Rs.) |
| 1. | 2,00,000 | 5 | 12,000 x 5/15 | 4,000 |
| 2. | 1,60,000 | 4 | 12,000 x 4/15 | 3,200 |
| 3. | 1,20,000 | 3 | 12,000 x 3/15 | 2,400 |
| 4. | 80,000 | 2 | 12,000 x 2/15 | 1,600 |
| 5. | 40,000 | 1 | 12,000 x 1/15 | 800 |
| 15 | Total | 12,000 |
When the debentures are redeemed at the end of a specific period, the discount on such debentures is spread evenly and so, equal amount is written off as discount every year. However, as in this case, when the debentures are redeemed by annual drawings with equal intervals, then the discount is written off in the proportion of debentures used.
Total DIscount= 2,00,000 x 6% = 12,000
So, the amount of discount to be written off for the third year is Rs. 2,400.
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