Debenture Application & Allotment A/c Dr. 210,000
Loss on Issue of Debentures A/c Dr. 10,000
To 9% Debenture A/c 2,00,000
To Premium on Redemption of Debentures A/c 10,000
To Securities Premium Reserve A/c 10,000
(Debenture application money transferred to debentures account)
Accountant has passed the above journal entry. Identify the correct situation of terms and conditions of issue and redemption of debentures,
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → Issue of Rs. 2,00,000, 9% debentures of Rs. 100 each at premium of 5% and redeemable at premium of 5%.
The entry shows both terms. What is credited over the face value tells the issue price, and the Loss on Issue of Debentures tells the redemption price.
Money received = Rs. 2,10,000; Debentures A/c is credited with the face value of Rs. 2,00,000
The extra Rs. 10,000 goes to Securities Premium Reserve A/c: 10,000 / 2,00,000 = 5% premium on issue
Premium on Redemption of Debentures A/c is credited with Rs. 10,000, the amount to be paid over the face value later: 5% premium on redemption
Loss on Issue of Debentures A/c is debited with the same Rs. 10,000, because the premium payable on redemption is a loss to the company
An issue at par would have no Securities Premium Reserve line, an issue at a discount would add the discount to the loss, and redemption at par would have no Premium on Redemption line.
Note: NTA picked this question from an NCERT (2026-27) illustration and changed the figures. Do not ignore NCERT while practising numericals.
NCERT (2026-27 edition):
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