Loss on issue of Debentures A/c to be written off out of the Statemen…

Based on following case, answer question :

A Ltd. issued 2,000, 10% Debentures of ₹100 each on April 1, 2019 at a discount of 10% redeemable at a premium of 10% after five years. Company purchased assets of the book value of ₹ 2,20,000 from B Ltd. at book value and agreed to make payment of purchase consideration by issuing another 2,000, 10% Debentures of ₹100 each at a premium of 10% on the above-mentioned date only.

Loss on issue of Debentures A/c to be written off out of the Statement of Profit and Loss will be:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → ₹20,000

Discount on issue = 2,000 × ₹10 = ₹20,000

Premium payable on redemption = 2,000 × ₹10 = ₹20,000

Loss on issue of debentures = ₹20,000 + ₹20,000 = ₹40,000

Securities premium received on the debentures issued to B Ltd. = 2,000 × ₹10 = ₹20,000

The loss is written off first from the Securities Premium Reserve (₹20,000); the balance goes to the Statement of Profit and Loss.

Written off from the Statement of Profit and Loss = ₹40,000 − ₹20,000 = ₹20,000

The whole ₹40,000 is not charged to the Statement of Profit and Loss because, under section 52(2), the ₹20,000 premium received on the issue to B Ltd. is used first to write off the loss; only the remaining ₹20,000 is written off from the Statement of Profit and Loss.

NCERT (2026-27 edition):
Terms of Issue of Debentures – “… When debentures are redeemable at a premium, the premium payable on redemption is debited to ‘Loss on Issue of Debentures A/c’. It may be noted that when debentures are issued at a discount and are redeemable at a premium, the amount of discount on issue is also debited to ‘Loss on Issue of Debentures’.”

NCERT (2026-27 edition):
Writing off Discount/Loss on Issue of Debentures – “Discount or Loss on issue of debentures is a capital loss and is written-off in the year when debentures are issued. Discount or loss can be written-off from securities premium reserve [section 52(2)]. In case, capital profit do not exist or are inadequate, the amount should be written off against revenue profits of the year.”

NCERT (2026-27 edition):
Do it Yourself

Extract from the NCERT textbook