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Question

A company issues Rs.15,00,000, 9% Debentures at a discount of 10% redeemable by annual drawings of Rs.3,00,000 at the end of each year. Calculate the amount of discount to be written-off for fifth year.

A
Rs. 50,000
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B
Rs. 30,000
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C
Rs. 10,000
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D
Rs. 20,000
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Solution

The correct option is D Rs. 10,000
S.No. Amount of
Debentures Used (Rs.)
Ratio Discount Amount
(Rs.)
1. 15,00,000 5 1,50,000 x 5/15 50,000
2. 12,00,000 4 1,50,000 x 4/15 40,000
3. 9,00,000 3 1,50,000 x 3/15 30,000
4. 6,00,000 2 1,50,000 x 2/15 20,000
5. 3,00,000 1 1,50,000 x 1/15 10,000
15Total Discount 1.50,000
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= 15,00,000 x 10% = 1,50,000
So, the amount of discount to be written off for the fifth year is Rs. 10,000.


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