Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures

Anaya Ltd issued 5,000 debentures of Rs 100 each at Rs 95, redeemable at Rs 105. Loss on issue is written off from the securities premium account to the maximum extent permitted. The company holds a securities premium balance of Rs 40,000 and the Companies Act, 2013 provision on the use of that account applies. The amount of loss on issue that must be charged to profit and loss instead is:

Rs 10,000 must be charged to profit and loss. Total loss is Rs 10 per debenture, Rs 50,000 in all. Securities premium may be applied to discount on debentures and to redemption premium under section 52(2), so Rs 40,000 is absorbed and Rs 10,000 remains.

  1. ARs 0
  2. BRs 10,000Correct
  3. CRs 25,000
  4. DRs 50,000

Explanation

Loss on issue = discount 5 + redemption premium 5 = Rs 10 per debenture, so 5,000 x 10 = Rs 50,000. Section 52(2)(c) permits writing off discount allowed on issue of debentures, and 52(2)(d) permits providing for the premium payable on redemption, from securities premium. The available Rs 40,000 is used, leaving Rs 10,000 for profit and loss. Rs 50,000 ignores the permitted use of securities premium.

Did you get it right without looking?

One question tells you little. A timed set on Redemption of Preference Shares, Issue and Redemption of Debentures shows your real accuracy, how long you take and where you lose marks.

Practise Redemption of Preference Shares, Issue and Redemption of DebenturesFree diagnostic mock

More Redemption of Preference Shares, Issue and Redemption of Debentures questions