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Which of the following is true with regard to 10% Debentures issued at a discount of 20%?
- a)The carrying amount of debentures gets reduced each year at a rate of 20%
- b)Issue price and the carrying amount of debentures are equal
- c)At the time of redemption, the debenture holder will be paid the issue price
- d)The face value and the carrying amount of debentures are equal
Correct answer is option 'D'. Can you explain this answer?
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Which of the following is true with regard to 10% Debentures issued at...
Explanation:
Discount on Debentures:
- When debentures are issued at a discount, it means they are issued at a price lower than their face value.
- In this case, 10% debentures are issued at a discount of 20%, which means they are issued at 80% of their face value.
Carrying Amount of Debentures:
- The carrying amount of debentures is the amount at which they are recognized in the books of accounts.
- The carrying amount of debentures issued at a discount is calculated as the face value minus the discount.
- In this case, as the debentures are issued at a discount of 20%, the carrying amount will be less than the face value.
Face Value vs. Carrying Amount:
- The face value of the debentures is the amount mentioned on the debenture certificate and is the amount that will be paid to the debenture holder at the time of redemption.
- The carrying amount of the debentures is the amount at which they are recognized in the books of accounts.
- In the case of debentures issued at a discount, the carrying amount will be less than the face value.
Therefore, in the case of 10% Debentures issued at a discount of 20%, the face value and the carrying amount of debentures are not equal. The carrying amount will be less than the face value due to the discount at which they were issued.
Discount on Debentures:
- When debentures are issued at a discount, it means they are issued at a price lower than their face value.
- In this case, 10% debentures are issued at a discount of 20%, which means they are issued at 80% of their face value.
Carrying Amount of Debentures:
- The carrying amount of debentures is the amount at which they are recognized in the books of accounts.
- The carrying amount of debentures issued at a discount is calculated as the face value minus the discount.
- In this case, as the debentures are issued at a discount of 20%, the carrying amount will be less than the face value.
Face Value vs. Carrying Amount:
- The face value of the debentures is the amount mentioned on the debenture certificate and is the amount that will be paid to the debenture holder at the time of redemption.
- The carrying amount of the debentures is the amount at which they are recognized in the books of accounts.
- In the case of debentures issued at a discount, the carrying amount will be less than the face value.
Therefore, in the case of 10% Debentures issued at a discount of 20%, the face value and the carrying amount of debentures are not equal. The carrying amount will be less than the face value due to the discount at which they were issued.
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Which of the following is true with regard to 10% Debentures issued at a discount of 20%?a)The carrying amount of debentures gets reduced each year at a rate of 20%b)Issue price and the carrying amount of debentures are equalc)At the time of redemption, the debenture holder will be paid the issue priced)The face value and the carrying amount of debentures are equalCorrect answer is option 'D'. Can you explain this answer?
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