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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:
When 10% Debentures are issued at a discount of 20%, it means that the issue price of the debentures is 80% of the face value of the debentures. Let's understand the implications of this on the carrying amount, redemption, and face value of the debentures.
Carrying Amount:
The carrying amount of debentures is the amount at which they are recorded in the books of accounts of the company. In the case of debentures issued at a discount, the carrying amount is lower than the face value of the debentures. However, the carrying amount does not get reduced each year at a rate of 20%. It remains the same until the debentures are redeemed.
Redemption:
At the time of redemption, the debenture holder will be paid the face value of the debentures. In the case of debentures issued at a discount, the face value is higher than the carrying amount. Therefore, the debenture holder will receive a higher amount than what was recorded in the books of accounts.
Face Value:
The face value of the debentures is the amount mentioned on the debenture certificate. In the case of debentures issued at a discount, the face value and the carrying amount of debentures are equal. This is because the discount is already accounted for in the carrying amount.
Conclusion:
Therefore, option D is the correct answer. Debentures issued at a discount do not have a reducing carrying amount. At the time of redemption, the debenture holder will receive the face value of the debentures, which is higher than the carrying amount. And, the face value and carrying amount of debentures are equal in the case of debentures issued at a discount.
When 10% Debentures are issued at a discount of 20%, it means that the issue price of the debentures is 80% of the face value of the debentures. Let's understand the implications of this on the carrying amount, redemption, and face value of the debentures.
Carrying Amount:
The carrying amount of debentures is the amount at which they are recorded in the books of accounts of the company. In the case of debentures issued at a discount, the carrying amount is lower than the face value of the debentures. However, the carrying amount does not get reduced each year at a rate of 20%. It remains the same until the debentures are redeemed.
Redemption:
At the time of redemption, the debenture holder will be paid the face value of the debentures. In the case of debentures issued at a discount, the face value is higher than the carrying amount. Therefore, the debenture holder will receive a higher amount than what was recorded in the books of accounts.
Face Value:
The face value of the debentures is the amount mentioned on the debenture certificate. In the case of debentures issued at a discount, the face value and the carrying amount of debentures are equal. This is because the discount is already accounted for in the carrying amount.
Conclusion:
Therefore, option D is the correct answer. Debentures issued at a discount do not have a reducing carrying amount. At the time of redemption, the debenture holder will receive the face value of the debentures, which is higher than the carrying amount. And, the face value and carrying amount of debentures are equal in the case of debentures issued at a discount.
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Which of the following is true with regard to 10% Debentures issued at...
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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 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 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 equal.Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 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 equal.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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 equal.Correct answer is option 'D'. Can you explain this answer?.
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