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.

Rs. 2,20,000

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.                                3150000
      To Debentures Application & allotment A/c (30000 x 105)               3150000
(Receipt of money)

* Debentures Application & allotment A/c (30000 x 105)   Dr.       3150000
   Loss on issue of debentures A/c (30000 debentures  x 15) Dr.   450000
        To debentures A/c (30000 x 100)                                                      3000000
        To securities premium reserve A/c ( 30000 x 5)                                 150000
        To Premium on redemption   ( 30000 x 15)                                       450000

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 = 80000
Add on balance in Securities Premium after issue of debentures      = 150000
Total balance in Securities Premium reserve account = 80000 + 150000
                                                                            = 230000

Total balance to be set off = 450000
Balance available in securities premium reserve = 230000
Balance to be set off = 450000 - 230000
                              = 220000

220000 will be set off from statement of profit and loss.