When debentures are redeemable at a premium, the premium payable on r…

When debentures are redeemable at a premium, the premium payable on redemption is

Answer & explanation

Correct answer: option 2

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

A company that agrees to repay more than the face value at redemption has taken on an extra cost of borrowing. That premium is recognised when the debentures are issued: Loss on Issue of Debentures A/c is debited and Premium on Redemption of Debentures A/c is credited. The premium account is a liability until the debentures are redeemed.

Why the other options are incorrect

Option (1) Asset of a company payable in future — Incorrect. An amount the company must pay in future is a liability, not an asset; it is shown under long-term borrowings until redemption.
Option (3) Capital gain for a company — Incorrect. The company pays the premium, so it is a loss to the company, not a gain.
Option (4) Collateral security — Incorrect. A collateral security is a subsidiary or secondary or additional security besides the primary security given for a loan. It has nothing to do with the premium payable on redemption.

NCERT (2026-27 edition):
Terms of Issue of Debentures – “… Notes: 1. When debentures are redeemable at a premium, the premium payable on redemption is debited to ‘Loss on Issue of Debentures A/c’. It may be noted that when debentures are issued at a discount and are redeemable at a premium, the amount of discount on issue is also debited to ‘Loss on Issue of Debentures’. It may be noted that when the debentures are issued at a discount and are redeemable at par, the amount debited to ‘Discount on Issue of Debentures A/c’ as usual. 2. 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.”

When debentures are redeemable at a premium, the premium payable on redemption is

Answer & explanation

Correct answer: option 2

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

Why the other options are incorrect

Option (1) Asset of a company payable in future — Incorrect. An amount the company must pay in future is a liability, not an asset; it is shown under long-term borrowings until redemption.
Option (3) Capital gain for a company — Incorrect. The company pays the premium, so it is a loss to the company, not a gain.
Option (4) Collateral security — Incorrect. A collateral security is a subsidiary or secondary or additional security besides the primary security given for a loan. It has nothing to do with the premium payable on redemption.