Read the following case study and answer question.
Rancho Ltd. was running successfully since last 8 years. Post covid there were some financial problems faced by firm, like many industries were facing. Due to their past reputation they could manage the permission from SEBI for issuing of shares on 1 Aug, 2022. They also decided to issue 12% Debentures of ₹100 each at 10% Discount and were to be redeemed at 25% premium in such a way that they could arrange fund of ₹45,00,000. At the time of issue of Debenture they also issued equity Share of ₹30,00,000 at 20% premium.
How much amount is to be debited in statement of profit and Loss to write off loss on issue of Debentures?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → ₹11,50,000
The loss on issue of debentures is the discount allowed on issue plus the premium payable on redemption. It is written off first from Securities Premium, and only the balance goes to the Statement of Profit and Loss.
Discount on issue = 50,000 × ₹10 = ₹5,00,000
Premium on redemption = ₹50,00,000 × 25% = ₹12,50,000
Total loss on issue = ₹5,00,000 + ₹12,50,000 = ₹17,50,000
Securities Premium from the equity issue = ₹30,00,000 × 20% = ₹6,00,000
Charged to Statement of Profit and Loss = ₹17,50,000 − ₹6,00,000 = ₹11,50,000
₹17,50,000 is the whole loss before using the securities premium; ₹12,50,000 and ₹5,00,000 are only its two parts.