The balance of discount on debentures is shown on which side of Balance Sheet?

Asset Side

The correct answer is option 1- Asset Side.

The discount/loss on issue of debentures is a capital loss or a fictitious asset and, therefore, must be written-off during the life time of debentures. The amount of discount/loss on issue of debentures should normally not be written-off in the year of issue itself since the benefit of the debentures would accrue to the company till their redemption. The discount/loss on it is, therefore, treated as capital loss. The discount may be charged to Securities Premium A/c or may be written-off over 3 to 5 years through statement of profit and loss as per guidelines issued by ICAI.
Discount on issue of debentures is a capital loss and is shown under the line item ‘Other Non-Current Assets’ or ‘Other Current Assets’ depending upon the time period in which it is to be written off. The discount on issue of debentures can be written off either by debiting it to Statement of Profit and Loss or out of Securities Premium Reserve A/c, if any, during the life time of debentures.