When debentures are issued at par and are redeemable at a premium, th…

The correct answer is Option (3) → Loss on issue of debentures account

When debentures are issued at par (face value) but are redeemable at a premium, the company will incur a loss at the time of redemption because it must pay back more than the amount received.

• This loss is a capital loss, not an immediate expense.

• It is recorded in a special account called “Loss on Issue of Debentures Account”, which is shown under “Miscellaneous Expenditure” (as a deferred revenue expenditure) and written off over the life of the debentures.

Bank $\text{A/c}$ $\text{Dr. }$$\text{XXX}$

$\mathbf{Loss}\mathbf{on}\mathbf{Issue}\mathbf{of}\mathbf{Debentures}A/c$ $\text{Dr.}$$\text{ XXX}$

$\text{ To Debentures A/c }$$\text{XXX}$

$\text{ To Premium on Redemption of Debentures A/c }$$\text{XXX}$