When Debentures are issued at par and are redeemable at a premium, the Loss on such an issue is debited to :
Answer & explanation
Correct answer: option 2
The correct answer is option (2)- Loss on issue of Debentures A/c.
* When debentures are redeemable at a premium, the premium payable on redemption is debited to ‘Loss on Issue of Debentures A/c’.
* Premium on redemption is a liability of a company payable in future. It is a provision and is shown under the head Non-current liabilities under sub-head ‘Long-term Borrowings’ until debentures are redeemed.
Journal entry in the case of Issue at par and redeemable at premium-
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(Receipt of application money)
(b) Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr. (with premium on redemption)
To Debentures A/c (with nominal value of debenture)
To Premium on Redemption of Debenture A/c (with premium on redemption)
(Allotment of debentures at par and redeemade at a premium)