When own debentures are cancelled, any profit on cancellation is tran…

The correct answer is Option (4) → Capital Reserve

When a company buys its own debentures in the market below their face value and cancels them, the gain arises from a capital transaction (redemption of a long-term loan), not from trading. It is first credited to Profit on Redemption (cancellation) of Debentures Account and then transferred to Capital Reserve.

Note: The NCERT answer key prints 8 (b) (Debenture redemption reserve) for this item. This is a misprint left over from the older book's numbering, where the same question is No. 11 with the answer (c) Capital reserve.