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Question

Difficulty: MediumIssue and Redemption of Debentures

Lagos Marine Services Ltd resolved to redeem ₦300,000\text{₦}300,000 nominal value of its 12%12\% debentures at a premium of 6%6\%. What is the total cash amount paid to debenture holders upon redemption?

Answer: 318000 ₦

Answer

The total cash amount paid to debenture holders upon redemption is ₦318,000.
When debentures are redeemed at a premium, the company pays debenture holders the nominal face value plus the agreed redemption premium percentage. Premium amount = 6% of ₦300,000 = ₦18,000. Total payment = ₦300,000 + ₦18,000 = ₦318,000.

Step-by-Step Solution

1
Calculate the redemption premium amount
₦18,000
The premium on redemption is calculated as 6% of the nominal value (₦300,000).
2
Determine the total cash outflow for redemption
₦318,000
Total cash paid equals the nominal value plus the redemption premium.

Key Concept

Redemption of Debentures at a Premium
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Topics

Issue and Redemption of Debentures

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