A company issued 30,000, 9% Debenture of Rs. 100 each at 5% premium. These debentures are to be redeemed at 15% premium at the end of 4 years. Existing Balance in Securities Premium before Issue of Debentures was Rs. 80,000. Identify the amount to be debited to Statement of Profit and Loss for writing off Loss on issue of Debentures.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 2,20,000
Debentures issued at premium and to be redeemed at premium.
Premium at the time of issue per share = 100 x 5/100
= 5
Premium at the time of redemption per share = 100 x 15/100
= 15
Journal entry at the time of issue of debentures-
* Bank A/c (30000 debentures x 105) Dr. 31,50,000
To Debentures Application & allotment A/c (30000 x 105) 31,50,000
(Receipt of money)
* Debentures Application & allotment A/c (30000 x 105) Dr. 31,50,000
Loss on issue of debentures A/c (30000 debentures x 15) Dr. 4,50,000
To debentures A/c (30000 x 100) 30,00,000
To securities premium reserve A/c ( 30000 x 5) 1,50,000
To Premium on redemption ( 30000 x 15) 4,50,000
This loss is set off first from securities premium and then from statement of profit and loss.
Existing Balance in Securities Premium before Issue of Debentures = 80,000
Add on balance in Securities Premium after issue of debentures = 1,50,000
Total balance in Securities Premium reserve account = 80,000 + 1,50,000
= 2,30,000
Total balance to be set off = 4,50,000
Balance available in securities premium reserve = 2,30,000
Balance to be set off = 4,50,000 - 2,30,000
= 2,20,000
2,20,000 will be set off from statement of profit and loss.