A company issued Rs. 1,00,000 worth of $$7\frac{1}{2}\% $$ Debentures of Rs. 100 each at a discount of 5%. These debentures are repayable after 10 years in a lum-sum at a premium of 5%. The amount of loss on issue of debentures to be written-off each year will be

[amp_mcq option1=”Rs. 1,000″ option2=”Rs. 5,000″ option3=”Rs. 500″ option4=”Rs. 1,500″ correct=”option3″]

The correct answer is C. Rs. 500.

The amount of loss on issue of debentures is Rs. 5,000 (100,000 * 5%). This loss is to be written off over the 10-year period of the debentures. Therefore, the amount of loss to be written off each year is Rs. 500 (5,000 / 10).

Option A is incorrect because it is the total loss on issue of debentures. Option B is incorrect because it is the total amount of the debentures. Option D is incorrect because it is the amount of the premium on redemption of debentures.

The following is a step-by-step solution to the problem:

1. Calculate the face value of the debentures: 1,00,000
2. Calculate the discount on issue of debentures: 1,00,000 * 5% = 5,000
3. Calculate the amount of loss on issue of debentures: 5,000
4. Calculate the number of years to maturity of the debentures: 10
5. Calculate the amount of loss to be written off each year: 5,000 / 10 = 500