Debentures of ₹ 1,00,000 were issued for a discount of ₹ 10,000, which are redeemable after four years. Then what will be the amount of discount to be written off from the P & L Account each year?

₹2500

The correct answer is option 2- 2500.

Rs 10,000 will be written off over a period of 4 years.
i.e. 10,000/4 = 2,500.

When a debenture is issued at a price below its nominal value, it is said to be issued at a discount. For example, the issue of Rs. 100 debentures at Rs. 95, Rs. 5 being the amount of discount.

The discount on issue of debentures can be written off either by debiting it to or out of Securities Premium Reserve, if any, during the life time of debentures. In this case the debentures are to be redeemed after four years and therefore, the loss on issue of debentures will be spread over a period of four years (10,000/4). 

Discount on issue of debentures to be written off within 12 months of the balance sheet date or the period of operating cycle is shown under ‘Other Current Assets’ and the part which is to be written off after 12 months of balance sheet is shown under ‘Other Non-Current Assets’. Thus, in the first year, the amount to be written off against "loss on issue of debentures" amounting to Rs 2,500 (1/4*10,000) will be shown under 'Other current Assets' while the remaining Rs 7,500 will be shown under the head 'other Non-current assets' to be written off in next three years.