Profit on redemption of debenture
Loss on redemption of debenture
Goodwill
None of the above
Answer is Right!
Answer is Wrong!
The correct answer is: B. Loss on redemption of debenture
A debenture is a long-term debt instrument issued by a company. It is a loan that the company borrows from investors, and the investors are repaid with interest over time. When a company redeems its debentures, it buys them back from the investors. If the company buys the debentures back for less than the original issue price, the difference is considered a loss on redemption.
In this case, the company bought its own debenture of Rs. 1000 from the market for Rs. 975. This means that the company lost Rs. 25 on the redemption of the debenture. This loss will be recorded in the company’s income statement as a loss on redemption of debentures.
The other options are incorrect because:
- Option A is incorrect because a profit on redemption of debentures would occur if the company bought the debentures back for more than the original issue price.
- Option C is incorrect because goodwill is an intangible asset that arises when a company acquires another company for more than the fair value of its net assets.
- Option D is incorrect because the difference of Rs. 25 is not considered goodwill.