Identify that account from which loss on issue of debentures can be written off when securities Premium Reserve fall short.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Statement of Profit and Loss
From Statement of Profit and Loss, the loss on issue of debentures can be written off when securities Premium Reserve fall short.
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. The journal entry passed is—
Securities Premium Reserve A/c Dr. [If exists to the extent of balance]
Statement of Profit and Loss Dr.
To Discount/Loss on Issue of Debentures A/c
(Discount/Loss on issue of debentures written-off)