When debentures are issued at a premium with the term of redeeming them at par. The amount of premium received at the time of issue will be:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Credited to Securities Premium Reserve A/c
When debentures are issued at a premium, the premium received is a capital gain for the company. It is credited to Securities Premium Reserve Account and shown under Reserves and Surplus. Redemption at par does not change this, because no premium is payable on redemption. The entry is: Bank A/c Dr. To Debentures A/c To Securities Premium Reserve A/c.
Why the other options are incorrect
Option (1) Debited to premium on Redemption of Debentures A/c — Incorrect. Premium on Redemption of Debentures Account is used only when debentures are to be redeemed at a premium; here they are redeemed at par.
Option (2) Credited to premium on Redemption of Debentures A/c — Incorrect. That account records a premium the company will pay on redemption, a liability, not the premium it has received on issue.
Option (3) Debited to Securities Premium Reserve A/c — Incorrect. The premium is a gain received, so the reserve is credited, not debited.
NCERT (2026-27 edition): |