Feeble Ltd.issued 10% Debentures at 94% for ₹ 20,00,000 on 1st July, 2013 repayable by five equal annual installments of ₹ 4,00,000 each starting from 30th June, 2014. Calculate the amount of discount to be written off in every accounting year assuming that the company decides to write off the debentures discount during the life of the debentures.

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Solution

Calculation of amount of Discount to be written off every year:

$A m o u n t o f D i s c o u n t = 20, 00, 000 \times \frac{6}{100} = 1, 20, 000$

Period Year End Outstanding Amount (Rs.) Months Used Product Ratio Discount Total Discount to be written off

2013-14 31st March, 2014 20,00,000 9 1,80,00,000 180 $1, 20, 000 \times \frac{180}{720} = 30, 000$ 30,000

2014-15 30th June, 2014 20,00,000 3 60,00,000 60 $1, 20, 000 \times \frac{60}{720} = 10, 000$

31st March, 2015 16,00,000 9 1,44,00,000 144 $1, 20, 000 \times \frac{144}{720} = 24, 000$ 34,000

2015-16 30th June, 2015 16,00,000 3 48,00,000 48 $1, 20, 000 \times \frac{48}{720} = 8, 000$

31st March, 2016 12,00,000 9 1,08,00,000 108 $1, 20, 000 \times \frac{108}{720} = 18, 000$ 26,000

2016-17 30th June, 2016 12,00,000 3 36,00,000 36 $1, 20, 000 \times \frac{36}{720} = 6, 000$

31st March, 2017 8,00,000 9 72,00,000 72 $1, 20, 000 \times \frac{72}{720} = 12, 000$ 18,000

2017-18 30th June, 2017 8,00,000 3 24,00,000 24 $1, 20, 000 \times \frac{24}{720} = 4, 000$

31st March, 2018 4,00,000 9 36,00,000 36 $1, 20, 000 \times \frac{36}{720} = 6, 000$ 10,000

2018-19 30th June, 2018 4,00,000 3 12,00,000 12 $1, 20, 000 \times \frac{12}{720} = 2, 000$ 2,000

Total 7,20,00,000 720 1,20,000 1,20,000

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Period	Year End	Outstanding Amount (Rs.)	Months Used	Product	Ratio	Discount	Total Discount to be written off
2013-14	31st March, 2014	20,00,000	9	1,80,00,000	180	$1, 20, 000 \times \frac{180}{720} = 30, 000$	30,000
2014-15	30th June, 2014	20,00,000	3	60,00,000	60	$1, 20, 000 \times \frac{60}{720} = 10, 000$
	31st March, 2015	16,00,000	9	1,44,00,000	144	$1, 20, 000 \times \frac{144}{720} = 24, 000$	34,000
2015-16	30th June, 2015	16,00,000	3	48,00,000	48	$1, 20, 000 \times \frac{48}{720} = 8, 000$
	31st March, 2016	12,00,000	9	1,08,00,000	108	$1, 20, 000 \times \frac{108}{720} = 18, 000$	26,000
2016-17	30th June, 2016	12,00,000	3	36,00,000	36	$1, 20, 000 \times \frac{36}{720} = 6, 000$
	31st March, 2017	8,00,000	9	72,00,000	72	$1, 20, 000 \times \frac{72}{720} = 12, 000$	18,000
2017-18	30th June, 2017	8,00,000	3	24,00,000	24	$1, 20, 000 \times \frac{24}{720} = 4, 000$
	31st March, 2018	4,00,000	9	36,00,000	36	$1, 20, 000 \times \frac{36}{720} = 6, 000$	10,000
2018-19	30th June, 2018	4,00,000	3	12,00,000	12	$1, 20, 000 \times \frac{12}{720} = 2, 000$	2,000
		Total		7,20,00,000	720	1,20,000	1,20,000