Question

When Debentures are issued at par and are redeemable at a premium, the Loss on such an issue is debited to:

• A. Statement of Profit \& Loss A/c
• B. Loss on issue of Debentures A/c
• C. Debentures Application \& Allotment A/c
• D. Profit on Issue of Debentures A/c

Hint:

Always debit "Loss on issue of Debentures A/c" when debentures are issued at par but redeemable at premium — it’s a capital loss.

Answer 1

The Correct Option is B

Step 1: Scenario Analysis.
When debentures are issued at par, the issue price equals the face value. However, if they are redeemable at a premium, the company faces a loss upon redemption, as it will repay more than the face value. This anticipated future loss is recognized at the time of issuance.Step 2: Loss Recognition.
This loss is recorded in the "Loss on issue of Debentures A/c" and presented as a fictitious asset on the balance sheet. It will be amortized over subsequent years.