Accountancy Part AIssue and Redemption of Debentures

Debentures of Rs. 5,00,000 is issued at a discount of 10% and redeema…

Debentures of Rs. 5,00,000 is issued at a discount of 10% and redeemable at a premium of 10%. What will be the loss on issue of debentures?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Rs. 1,00,000

When debentures are issued at a discount and are redeemable at a premium, the company bears two costs: the discount allowed now and the premium it has promised to pay on redemption. Both are debited to Loss on Issue of Debentures Account.

Discount on issue = Rs. 5,00,000 × 10% = Rs. 50,000
Premium on redemption = Rs. 5,00,000 × 10% = Rs. 50,000
Loss on issue = Rs. 50,000 + Rs. 50,000 = Rs. 1,00,000

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.”