Lesson eLearning

A company issues 500 debentures of Rs 1,00,000 each at 102% of face value. Issue costs are Rs 3,000 per debenture and a 10% discount on these costs is allowed. Find (i) the amount to be credited to the Debentures Account and (ii) the net cash received by the company.

medium 3 marks Class 12 · Accountancy · Accounting for Debentures
Answer
51000000; 50850000

The correct answer is 51000000; 50850000 — Compute net cash received: 51,00,000 – 1,50,000 = Rs 50,85,000

Step-by-step solution

  1. Compute issue price per debenture: 102% of Rs 1,00,000 = 1.02 × 1,00,000 = Rs 1,02,000
  2. Multiply by 500 debentures: 1,02,000 × 500 = Rs 51,00,000 – amount credited to Debentures Account
  3. Compute total issue costs: 3,000 × 500 = Rs 15,00,000
  4. Compute discount on issue costs: 10% of 15,00,000 = 1,50,000
  5. Compute net cash received: 51,00,000 – 1,50,000 = Rs 50,85,000
Common mistake: Ignoring the discount on issue costs when calculating net cash received

Concept tested: Issue costs and discount on issue costs

Published · How this solution was prepared and checked

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