Loss on Redemption of Debentures

To calculate the amount of loss on redemption of debentures to be written off every year, we need to understand the terms and conditions of the debentures issued by P Ltd.

Debenture Details:
- Face value of the debentures: ₹100
- Number of debentures issued: 5000
- Interest rate: 12%
- Premium at the time of issuance: 10%
- Redemption premium after 10 years: 20%

Step 1: Calculate the Premium on Issuance:
The premium on issuance is calculated as a percentage of the face value of the debentures. In this case, the premium is 10% of ₹100, which is ₹10 per debenture.

Total premium on issuance = Number of debentures issued × Premium per debenture
= 5000 × ₹10
= ₹50,000

Step 2: Calculate the Total Cash Outflow on Redemption:
The cash outflow on redemption includes the face value of the debentures plus the redemption premium. In this case, the redemption premium is 20% of the face value of the debentures.

Face value of the debentures = Number of debentures issued × Face value per debenture
= 5000 × ₹100
= ₹5,00,000

Total cash outflow on redemption = Face value of the debentures + Redemption premium
= ₹5,00,000 + (20% of ₹5,00,000)
= ₹5,00,000 + ₹1,00,000
= ₹6,00,000

Step 3: Calculate the Loss on Redemption:
The loss on redemption is the difference between the cash outflow on redemption and the premium received on issuance.

Loss on redemption = Total cash outflow on redemption - Premium on issuance
= ₹6,00,000 - ₹50,000
= ₹5,50,000

Step 4: Calculate the Annual Loss to be Written Off:
The annual loss to be written off is the total loss on redemption divided by the number of years until redemption.

Annual loss to be written off = Loss on redemption / Number of years until redemption
= ₹5,50,000 / 10
= ₹55,000

Therefore, the amount of loss on redemption of debentures to be written off every year is ₹55,000. This amount should be recorded as an expense in the company's financial statements to reflect the cost of redeeming the debentures at a premium.

5000×20=100000