Company Accounts

Debentures

Easy

common

When debentures are issued at par and are redeemable at a premium, the loss on such issue is debited to :

Statement of profit and loss

Debentures applications and allotment account

Loss on issue of debentures account

Statement of cash flow

✅ Correct Option: 3

When debentures are issued at par and redeemable at a premium, the company receives the face value but must pay back more than the face value at redemption. This difference represents a loss to the company.

Illustration:

Company issues 1,000 debentures of ₹100 each at par
Redemption will be at 10% premium (₹110 per debenture)
Amount received at issue = ₹1,00,000
Amount to be paid at redemption = ₹1,10,000
Loss = ₹10,000

This loss (premium payable on redemption) is treated as a capital loss and is debited to Loss on Issue of Debentures Account at the time of issue itself.

Journal Entry at the time of issue:

Particulars	Debit (₹)	Credit (₹)
Bank A/c	1,00,000
Loss on Issue of Debentures A/c	10,000
To Debentures A/c		1,00,000
To Premium on Redemption of Debentures A/c		10,000

The Loss on Issue of Debentures Account is subsequently written off over the life of the debentures either against Securities Premium Reserve (if available) or charged to Statement of Profit and Loss in installments.

However, the initial accounting treatment requires the loss to be debited to Loss on Issue of Debentures Account.

2023: 28 May Shift 1

AB&Co. purchased assets worth Rs. 28,80,000 from vendor. It issued debentures of Rs. 100 each at a discount of 4% in full satisfaction of the purchase consideration. The number of debentures issued to vendor is :

2022: 30 Aug Shift 2

Romi Ltd. purchased building worth Rs. 1,50,000 machinery worth Rs. 1,40,000 and furniture worth Rs. 10,000 from xyz co. and took over its liabilities of Rs. 20,000 for a purchase consideration of Rs. 3,15,000. They paid the purchase consideration by issuing 12% debentures of Rs. 100 each at a premium of 5%. What will be the number of debentures issued by Romi Ltd.

2026: 19 May Shift 1

Mehak Ltd. took a loan of Rs. 30,00,000 from a bank against primary security worth Rs. 40,00,000 and issued 4,000, 6% debentures of Rs. 100 each as a collateral security. The company, again after one year, took a loan of Rs. 50,00,000 from the bank against the plant as primary security and deposited 6,000, 6% debentures of Rs. 100 each as collateral security.

What is the amount of debenture suspense account in the balance sheet?

2025: 14 May Shift 1

Match List-I with List-II

List-I	List-II
(A) Secured Debentures	(I) Which are payable on the expiry of the specific period either in lump sum or in instalments during the life time of the company.
(B) Unsecured Debentures	(II) Debentures where a charge is created on the assets of the company for the purpose of payment in case of default.
(C) Redeemable Debentures	(III) These debentures are repayable on the winding-up of a company or on the expiry of a long period.
(D) Irredeemable Debentures	(IV) Debentures do not have a specific charge on the assets of the company.

Choose the correct answer from the options given below:

2025: 24 May Shift 1

Which of the following statements about debentures is FALSE?

(A) Debenture is a part of owned capital.

(B) Debentures cannot be converted into shares.

(D) Debentures cannot be issued at a premium.

Choose the correct answer from the options given below:

2026: 20 May Shift 1

In case debentures were issued as collateral security for taking loan from ABC Bank. Choose the correct journal entry for cancellation of debentures as collateral security on repayment of bank loan.

When debentures are issued at par and are redeemable at a premium, the loss on such issue is debited to :

Solution

Related questions:

Keyboard Shortcuts

CUET Accountancy Past Year Questions (Topic-Wise)