Company Accounts

Debentures

Medium

To write off Discount on issue of debentures following entry is made

Shareholder A/c Dr.

To Discount on issue of Debentures A/c

Capital reserve A/c Dr.

To Discount on issue of Debentures A/c

Securities Premium Reserve A/c./Statement of Profit and Loss Dr.

To Discount on Issue of Debentures A/c.

Share forfeiture A/c Dr.

To Discount on issue of Debentures A/c

✅ Correct Option: 3

When debentures are issued at a discount (below their nominal value), the discount amount is initially recorded as "Discount on Issue of Debentures A/c" which appears as a fictitious asset on the assets side of the balance sheet.

This discount needs to be written off over the life of the debentures. According to accounting standards, Discount on Issue of Debentures can be written off against:

Securities Premium Reserve Account, or
Statement of Profit and Loss (Profit & Loss Account)

The journal entry for writing off the discount is:

Securities Premium Reserve A/c Dr. (or Statement of Profit and Loss Dr.)

To Discount on Issue of Debentures A/c

This entry removes the fictitious asset from the books by charging it against available reserves or current year's profit.

Why other options are incorrect:

Shareholder A/c has no connection with debenture transactions
Capital Reserve can only be used for specific purposes like writing off capital losses, not revenue losses like debenture discount
Share Forfeiture A/c relates only to forfeited shares and cannot be used for debenture-related expenses

The correct answer is Option 3.

2023: 28 May Shift 1

If 5% debenture of Rs. 8,00,000 of Rs. 100 were issued at 15% premium. Amount is payable as Rs. 25 on applications, Rs. 50 on allotment and Rs. 40 on 1st and final call. How much amount should be credited to "Security Premium Reserve A/c".

2025: 24 May Shift 1

ABC Industries Ltd. issued 2,000, 10% Debentures of Rs.100 each, at a premium of Rs. 10 per debenture payable as follows: On application Rs. 50 On allotment Rs. 60 The debentures were fully subscribed, and all money was duly received. The amount of long-term borrowings on the balance sheet will be

2026: 24 May Shift 1

NT Ltd. purchased machinery worth Rs 3,60,000 from RELY Ltd. The payment is to be made by the issuance of 12% debentures of Rs.100 each at 10% discount. Number of Debentures issued by NT Ltd. are:

2022: 20 July Shift 1

The following journal entry is recorded in the books of RST Ltd. on issue of debentures :

Bank a/c Dr 18,00,000

Loss on issue of Debentures a/c Dr 6,00,000

To 14% Debentures 20,00,000

To Premium on Redemption of Debentunes 4,00,000

Debentures have been issued at a discount of :

2026: 11 May Shift 2

The number of debentures to be issued to the vendor against purchase of machinery, will be calculated as follows:

2025: 26 May Shift 2

Match List-I with List-II

List-I	List-II
(A) Debenture of Rs 100 issued at Rs 110.	(I) Debenture as collateral security.
(B) Debenture of Rs 100 issued at Rs 100.	(II) Debenture issued at Premium
(C) Debenture of Rs 100 issued at Rs 90.	(III) Debenture issued at par.
(D) Debenture issued to the lender in addition to some other assets already pledged.	(IV) Debenture issued at Discount.

Choose the correct answer from the options given below:

To write off Discount on issue of debentures following entry is made

Solution

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