Question

Moon Ltd. issued 5,000 debentures of Rs. 100 each at a discount of 10%. The expenses on issue amounted to Rs. 20,000. The company wants to redeem the debentures at the rate of Rs. 1,00,000 each year commencing with the end of 5th year. How much discount and expenses should be written off in each year?

• A. Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 8,000, Rs. 6,000, Rs. 4,000, Rs. 2,000 in each year respectively
• B. Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 4,000, Rs. 6,000, Rs. 6,000, Rs. 8,000 in each year respectively
• C. Rs. 2,000, Rs. 6,000; Rs. 8,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000 in each year respectively
• D. Rs. 7,000, Rs. 7,000, Rs. 7,000, Rs. 7,000, Rs. 7,000, Rs. 7,000, Rs. 7,000, Rs. 7,000, Rs. 7,000 in each year respectively

Answer 1

The correct option is A Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 10,000, Rs. 8,000, Rs. 6,000, Rs. 4,000, Rs. 2,000 in each year respectively

Here, the discount is payable on the redeemable debentures i.e. Rs 1,00,000.

The discount of 10% on these debentures means Rs 10,000 per year. The expenses on issue amounted to Rs. 20,000 and 10% discount per year means that 10% of 20,000 i.e Rs 2,000 will be written off each year which means the expense will be Rs 10,000, then Rs 8,000, Rs 6,000, Rs 4000, Rs 2000.