Corporate Accounting and Financial Management · Accounting for Debentures

Writing Off Discount and Loss on Issue of Debentures

Updated 11 October 2026 · Fact-checked

Discount on issue of debentures and the loss on issue (including premium payable on redemption) is a cost of borrowing. Record it as an asset-side item at issue, then write it off over the life of the debentures, or earlier out of securities premium under section 52(2)(c) and (d). Use equal yearly amounts, or the outstanding-debentures ratio if redemption is in instalments.

Understand Writing Off Discount and Loss on Issue of Debentures

A company can issue debentures at par, at a premium or at a discount. It can also redeem them at par or at a premium. Debentures can be issued at a discount, unlike shares. Section 53 bars discount on shares, but there is no such bar for debentures.

When debentures are issued at a discount, the company receives less than face value but must repay the full face value. The difference is a cost of borrowing. The same is true when debentures are redeemable at a premium: the extra amount payable is a cost. The two together make the loss on issue of debentures.

Accounting for this has three stages. First, at issue, debit the full cost to Discount on Issue of Debentures or Loss on Issue of Debentures account. Show it as an asset-type item until written off. Second, each year, charge a part to the Statement of Profit and Loss as a finance cost. Third, by the redemption date, the balance must be nil.

A premium received on issue is different. Section 52(1) says an amount equal to the premium received on shares goes to the securities premium account. For debentures issued at a premium, the usual ICSI treatment is to credit Securities Premium. Note that section 52 as supplied speaks of shares, so be careful to follow the treatment your study material gives for debentures.

The company may use the securities premium account to meet these costs. Section 52(2)(c) allows it for expenses, commission or discount on any issue of shares or debentures. Section 52(2)(d) allows it to provide for the premium payable on redemption of redeemable preference shares or debentures. This is optional. If securities premium is used, the amount is not charged to profit and loss.

Key rules to remember

Discount on issue: Discount = Face value of debentures − Issue price received; Debit Discount on Issue of Debentures. The company still repays the full face value.
Loss on issue of debentures: Loss on issue = Discount on issue + Premium payable on redemption; If debentures are issued at par but redeemed at a premium, the loss equals the redemption premium only.
Write-off when redeemed in one lot: Yearly write-off = Total loss ÷ Number of years to redemption; Use this when all debentures are redeemed on one date. Use it for equal-year spreading.
Write-off when redeemed in instalments: Write-off for a year = Total loss × (Debentures outstanding that year ÷ Sum of debentures outstanding over all years); The charge is higher in earlier years when more debentures are outstanding. Use debenture-years as weights.
Use of securities premium: Section 52(2)(c) and (d): securities premium may be applied against discount, commission, expenses and redemption premium; It is permitted, not compulsory. Write the loss off from securities premium first if the question says so.
Entry at issue (discount and redemption premium): Bank A/c Dr (cash received); Loss on Issue of Debentures A/c Dr (discount + redemption premium); To Debentures A/c (face value); To Premium on Redemption of Debentures A/c (redemption premium); Both the discount and redemption premium sit in the loss account until written off.

How to solve Writing Off Discount and Loss on Issue of Debentures questions

Follow this order for any question on discount, premium or loss on issue of debentures.

1Read the issue price and the redemption price. Find the discount, if any, and the redemption premium, if any.
2Add the two to get the total loss on issue. Note that issue premium received is not part of this loss.
3Pass the issue entry. Credit Debentures at face value and Premium on Redemption at the redemption premium. Debit Loss on Issue of Debentures for the total.
4Check whether the question tells you to use securities premium. If it does, write off the allowed amount against securities premium under section 52(2).
5Spread the balance over the life. Use equal years for one-lot redemption. Use outstanding-debenture weights for instalment redemption.
6Pass the yearly entry: Statement of Profit and Loss (finance cost) Dr; To Loss on Issue of Debentures A/c.
7Show the unwritten balance in the balance sheet extract, if asked, under other non-current or current assets as applicable.
8Confirm that the total written off equals the total loss by the redemption date.

Quickest way: Total loss, then split by years

When to use it: Use this when the question asks only for the amount written off each year or for the balance at a given date.

Find the total loss in one line: face value × (discount % + redemption premium %).
Divide by the number of years for one-lot redemption.
For instalments, write down debentures outstanding each year, add them, and use each year's share as the fraction.
Subtract securities premium used, if any, before you spread.
Check that the yearly amounts add up to the total loss.

Common mistakes in Writing Off Discount and Loss on Issue of Debentures

Leaving out the redemption premium from the loss on issue.
Students think only a discount on issue is a loss.
Fix: Always compare the redemption price with face value too. Add the redemption premium to the discount.
Calculating the discount on the issue price instead of the face value.
The percentage is read as a percentage of the amount received.
Fix: Unless told otherwise, discount and premium percentages apply to face value.
Writing off equal amounts when debentures are redeemed in instalments.
Equal spreading is the easiest method and students use it by habit.
Fix: If redemption is in instalments, use the ratio of debentures outstanding each year.
Using the securities premium account as though it were compulsory.
Students read section 52(2) as an obligation.
Fix: The section says the account 'may be applied'. Use it only when the question says so or gives it as the choice.
Treating premium received on issue as income in profit and loss.
Premium looks like a gain.
Fix: Credit it to Securities Premium, as the standard treatment requires. Never take it to profit and loss.
Showing the loss on issue as a negative figure under debentures.
Students try to net it against the liability.
Fix: Show it as an asset-type item until written off, and show debentures at full face value.

Worked examples

Example 1

Bharat Textiles Ltd issued 10,000 debentures of ₹100 each at a discount of 5%, redeemable at a premium of 10% at the end of 5 years. Pass the issue entry and find the yearly write-off of the loss on issue.

Show the solution

Face value = 10,000 × ₹100 = ₹10,00,000.
Cash received = ₹10,00,000 × 95% = ₹9,50,000. Discount = ₹50,000.
Premium on redemption = ₹10,00,000 × 10% = ₹1,00,000.
Total loss on issue = ₹50,000 + ₹1,00,000 = ₹1,50,000.
Entry: Bank A/c Dr ₹9,50,000; Loss on Issue of Debentures A/c Dr ₹1,50,000; To 10% Debentures A/c ₹10,00,000; To Premium on Redemption of Debentures A/c ₹1,00,000.
Yearly write-off = ₹1,50,000 ÷ 5 = ₹30,000.
Yearly entry: Statement of Profit and Loss Dr ₹30,000; To Loss on Issue of Debentures A/c ₹30,000.

Answer: Total loss on issue is ₹1,50,000. The company writes off ₹30,000 each year for 5 years.

Example 2

Kaveri Industries Ltd issued 6,000 debentures of ₹100 each on 1 April at a discount of 6%, redeemable at par in three equal annual instalments at the end of years 1, 2 and 3. Compute the amount written off in each year.

Show the solution

Face value = 6,000 × ₹100 = ₹6,00,000.
Discount = ₹6,00,000 × 6% = ₹36,000. There is no redemption premium, so total loss = ₹36,000.
Debentures outstanding during year 1 = ₹6,00,000. Year 2 = ₹4,00,000. Year 3 = ₹2,00,000.
Sum of outstanding amounts = ₹6,00,000 + ₹4,00,000 + ₹2,00,000 = ₹12,00,000.
Year 1 write-off = ₹36,000 × 6,00,000 ÷ 12,00,000 = ₹18,000.
Year 2 write-off = ₹36,000 × 4,00,000 ÷ 12,00,000 = ₹12,000.
Year 3 write-off = ₹36,000 × 2,00,000 ÷ 12,00,000 = ₹6,000.
Check: ₹18,000 + ₹12,000 + ₹6,000 = ₹36,000.

Answer: Write off ₹18,000 in year 1, ₹12,000 in year 2 and ₹6,000 in year 3.

Exam tips

Set out the total loss first. Marks are often given for finding it correctly.
Write the full issue entry with both credits, Debentures and Premium on Redemption. A missing line costs marks.
Read the question for the words 'out of securities premium'. Then cite section 52(2)(c) and (d) in your answer.
For instalment redemption, show the ratio of outstanding amounts clearly and check that the total ties back.
State the conclusion in one line: the amount written off and the balance left.

Practice questions from Accounting for Debentures

Writing Off Discount and Loss on Issue of Debentures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Writing Off Discount and Loss on Issue of Debentures: frequently asked questions

Can a company issue debentures at a discount?

Yes. Section 53 prohibits discount only on shares. For debentures, the discount is a borrowing cost that you record and write off over the life of the debentures.

Can securities premium be used to write off discount on debentures?

Section 52(2)(c) allows securities premium to be applied to write off the discount allowed on any issue of shares or debentures. Section 52(2)(d) allows it for the premium payable on redemption of debentures. It is an option, not a duty.

Where is loss on issue of debentures shown in the balance sheet?

It appears as an asset-type balance until written off, under other non-current or current assets depending on when it will be written off. Debentures are shown at full face value.

How do I write off the loss if debentures are redeemed in instalments?

Spread the loss in proportion to debentures outstanding each year. Earlier years get a bigger share because more debentures are outstanding.