A Ltd. issued 20,000 10% debentures of ₹100 each at a discount of 5% on April 01, 2022 which are redeemable at a 10% premium. It has a sufficient balance of securities premium reserve.
Calculate the amount to be written off from the securities premium reserve.
Answer & explanation
Correct answer: option 3
The correct answer is option 3- ₹3,00,000.
Issue price = ₹100 - ₹5
= ₹95
Redemption price = ₹100 + ₹10
= ₹110
Total amount of debentures issued = 20,000 x 95
= ₹19,00,000
Total amount of debentures redeemed = 20,000 x 110
= ₹22,00,000
Amount to be written off from the securities premium reserve = 22,00,000 - 19,00,000
= ₹3,00,000
Therefore, the amount to be written off from the securities premium reserve is ₹3,00,000.
The securities premium reserve is used to write off any expenses incurred on the issue of debentures, such as the discount on issue. The premium payable on redemption of debentures is also written off from the securities premium reserve.