Accountancy Part AIssue and Redemption of Debentures

Z Ltd issued 15,000, 12% Debentures of Rs.100 each at a premium of 2%…

Z Ltd issued 15,000, 12% Debentures of Rs.100 each at a premium of 2% redeemable at a premium of 5% In such case:

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → Loss on Issue of debentures will be debited by Rs.75,000

When debentures are redeemable at a premium, the premium payable on redemption is a loss to the company, recorded at the time of issue: Loss on Issue of Debentures A/c is debited and Premium on Redemption of Debentures A/c is credited with the premium on redemption. The premium received on issue is a separate gain, credited to Securities Premium Reserve, and does not reduce this loss.

Nominal value = 15,000 × Rs. 100 = Rs. 15,00,000
Premium on redemption = 5% of Rs. 15,00,000 = Rs. 75,000 (Loss on Issue of Debentures A/c debited; Premium on Redemption of Debentures A/c credited)
Premium on issue = 2% of Rs. 15,00,000 = Rs. 30,000 (credited to Securities Premium Reserve A/c)

The Rs. 30,000 is the premium received on issue, a credit to Securities Premium Reserve, not a loss; and Premium on Redemption of Debentures is credited with Rs. 75,000, not Rs. 15,000.

NCERT (2026-27 edition):
Terms of Issue of Debentures

Extract from the NCERT textbook

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’.”