When Debentures are issued at par and are redeemable at a premium, th…

The correct answer is Option (2) → Loss on issue of Debentures A/c

When debentures are issued at par but redeemable at a premium, the premium payable later is a loss to the company. It is debited to Loss on Issue of Debentures Account and credited to Premium on Redemption of Debentures Account.

Option (1) Statement of Profit & Loss A/c — Incorrect. The loss is written off to it later; it is not debited at the time of issue.

Option (3) Debentures Application & Allotment A/c — Incorrect. It is debited only with the amount due on the debentures, not with the loss.

Option (4) Profit on Issue of Debentures A/c — Incorrect. No profit arises on such an issue.

Note: The book’s answer key prints “5 (b)” for this item; that is a misprint – the book’s own Note on the entry gives (c), Loss on Issue of Debentures Account.