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Question

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:

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

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 | $15,000\left(\frac{10}{40}\times 60,000\right)$ |

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

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

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

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

40 |

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

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