Question

Feeble Ltd.issued 10% Debentures at 94% for ₹ 20,00,000 on 1st July, 2013 repayable by five equal annual installments of ₹ 4,00,000 each starting from 30th June, 2014. Calculate the amount of discount to be written off in every accounting year assuming that the company decides to write off the debentures discount during the life of the debentures.

Answer 1

Explanation:

June, 2014. Calculate the amount of discount to be written off in every accounting year assuming that the company decides to write off the debentures discount during the life of the de..

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Answer 2

The amount of discount to be written off in every accounting year assuming that the company decides to write off the debentures discount during the life of the debentures are calculated below:

Explanation:

Given,

Feeble Ltd.issued 10% Debentures at 94% for ₹ 20,00,000 on 1st July, 2013 repayable by five equal annual installments of ₹ 4,00,000 each starting from 30th June, 2014.

Calculation of the amount of discount to be written off:

For Year I (2013-2014)

Outstanding balance = Rs. 20,00,000

Weight = 5

The amount of discount to be written off

$1,20,000 \times \frac{5}{15} \times \frac{9}{12}=30,000$

For Year II (2014-2015)

Outstanding balance = Rs. 16,00,000

Weight = 5/4

The amount of discount to be written off

$\begin{array}{l}1,20,000 \times \frac{5}{15} \times \frac{3}{12}+1,20,000 \times \frac{4}{15} \times \frac{9}{12} \\\\10,000+24,000=34,000\end{array}$

For Year III (2015-2016)

Outstanding balance = Rs. 12,00,000

Weight = 4/3

The amount of discount to be written off

$\begin{array}{l}1,20,000 \times \frac{4}{15} \times \frac{3}{12}+1,20,000 \times \frac{3}{15} \times \frac{9}{12} \\\\8,000+18,000=26,000\end{array}$

For Year IV (2016-2017)

Outstanding balance = Rs. 8,00,000

Weight = 3/2

The amount of discount to be written off

$\begin{array}{l}1,20,000 \times \frac{3}{15} \times \frac{3}{12}+1,20,000 \times \frac{2}{15} \times \frac{9}{12} \\\\6,000+12,000=18,000\end{array}$

For Year V (2017-2018)

Outstanding balance = Rs. 4,00,000

Weight = 2/1

The amount of discount to be written off

$\begin{array}{l}1,20,000 \times \frac{2}{15} \times \frac{3}{12}+1,20,000 \times \frac{1}{15} \times \frac{9}{12} \\\\4,000+6,000=10,000\end{array}$

For Year VI (2018-2019)

Outstanding balance = Balance

Weight = 1

The amount of discount to be written off

$1,20,000 \times \frac{1}{15} \times \frac{3}{12}=2,000$

Total weight

$=5 + \frac{5}{4} + \frac{4}{3} + \frac {3}{2}+\frac{2}{1}+1\\\\=15$

The total amount of discount to be written off

$=30,000+34,000+26,000+18,000+10,000+2,000\\\\=1,20,000$

Thus, the amount of discount to be written off in every accounting year assuming that the company decides to write off the debentures discount during the life of the debentures is Rs. 1,20,000.