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On 1st January, 2000, Star Ltd. issued 1.000. 12% Debentures of Rs 100 each at a discount of 5%. repayable as follows :

On 31st December, 2002 — Rs 20,000 

On 31st December, 2003 — Rs 60,000 

On 31 st December, 2004 — Rs 20,000

The company pays interest on debentures annually.

You are required to: 

(a) Pass the Journal entries (including interest) for the year beginning 1st January, 2000 to 31st December, 2000.

(b) Prepare the ‘Discount on issue of Debenture Account’, till it is finally closed

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(a)

(b) Working Notes : The ratio for writing off discount on issue of debentures based on their redemption is calculated as follows:

1,00,000 : 1,00,000 : 1,00,000 : 80,000 : 20,000 = 5 : 5 : 5 : 4 : 1 Hence, discount to be written off during the first, second and third

As per latest guidelines, discount on issue of debentures is to be written off completely in the year of issue of debentures itself.

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