On 1st April 2012, Z Ltd. issued ₹ 10,00,000, 10% Debentures of ₹ 100 each at 94% redeemable at par. The debentures are to be redeemed by drawings method in the following manner:

Year end 2nd 3rd 4th 5th

Nominal value of Debentures to be Redeemed 10% 20% 30% 40%

Calculate the amount of discount on issue of debentures to be written off each year.

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Solution

At the end of Outstanding Balance Weight Discount Written-off

Year I 10,00,000 10 $15, 000 (\frac{10}{40} \times 60, 000)$

Year II 10,00,000 10 $15, 000 (\frac{10}{40} \times 60, 000)$

Year III 9,00,000 9 $13, 500 (\frac{9}{40} \times 60, 000)$

Year IV 7,00,000 7 $10, 500 (\frac{7}{40} \times 60, 000)$

Year V 4,00,000 4 $6, 000 (\frac{4}{40} \times 60, 000)$

40

Working Notes:

WN1: Calculation of discount amount to be written-off

$Discount = 10, 00, 000 \times \frac{6}{100} = 60, 000$

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Year end	2nd	3rd	4th	5th
Nominal value of Debentures to be Redeemed	10%	20%	30%	40%

At the end of	Outstanding Balance	Weight	Discount Written-off
Year I	10,00,000	10	$15, 000 (\frac{10}{40} \times 60, 000)$
Year II	10,00,000	10	$15, 000 (\frac{10}{40} \times 60, 000)$
Year III	9,00,000	9	$13, 500 (\frac{9}{40} \times 60, 000)$
Year IV	7,00,000	7	$10, 500 (\frac{7}{40} \times 60, 000)$
Year V	4,00,000	4	$6, 000 (\frac{4}{40} \times 60, 000)$
		40