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Question
Answer in a sentence only.
What is meant by ‘Issue of debenture at discount and redeemable at premium’?
Solution
When debentures are issued at a price below their face value, it is known as ‘issue of debentures at discount’. ‘Redemption of debentures at premium’ implies that such debentures will be paid off a redemption price that is more than its face value. For example, a debenture with face value of Rs 10, issued at Rs 9 (issued at discount of Re 1) and redeemable at Rs 12 (redeemed at a premium of Rs 2).
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(1) Issue 47,500 equity shares at a premium of Rs 100 per share.
(2) Obtain a long-term loan from the bank which was available at 12% per annum.
(3) Issue 9% debentures at a discount of 5%.
After evaluating these alternatives the company decided to issue 1,00,000, 9% debentures on 1.4.2008. The face value of each debenture was Rs 100. These debentures were redeemable in four installments starting from the end of the third year, which was as follows:
| Year | Rs |
| III | 10,00,000 |
| IV | 20,00,000 |
| V | 30,00,000 |
| VI | 40,00,000 |
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Pass necessary journal entries in the given cases :
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Which of the following statement is incorrect with respect to debentures?
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