Accountancy Part AIssue and Redemption of Debentures

Discount on Issue of DebenturesA. Is not a capital gainB. Can be writ…

Discount on Issue of Debentures

A. Is not a capital gain

B. Can be written off in any year

C. Can be written off from securities premium Reserve

D. Can be written off from General Reserve

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → A and C only

Discount on issue of debentures is a capital loss. The book requires it to be written off in the year the debentures are issued, first out of the securities premium reserve and then out of the revenue profits of that year.

A. Is not a capital gain True. The company receives less than the face value it must repay, so the discount is a capital loss, not a gain.

B. Can be written off in any year False. It is written off in the year in which the debentures are issued, not in any year the company chooses.

C. Can be written off from securities premium Reserve True. Section 52(2) of the Companies Act, 2013 allows the securities premium reserve to be used for writing off discount on the issue of debentures.

D. Can be written off from General Reserve False. After the securities premium reserve, the balance is written off against the revenue profits of the year (Statement of Profit and Loss), not out of the general reserve.

NCERT (2026-27 edition):
Writing off Discount/Loss on Issue of Debentures – “Discount or Loss on issue of debentures is a capital loss and is written-off in the year when debentures are issued. Discount or loss can be written-off from securities premium reserve [section 52(2)]. In case, capital profit do not exist or are inadequate, the amount should be written off against revenue profits of the year.”