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CS Executive · Corporate Accounting and Financial Management · Accounting for Debentures

Sundaram Ltd issues 1,000 debentures of Rs 100 each at Rs 95, redeemable at par. Applications are received and money is allotted in full. What is the correct treatment of the Rs 5 per debenture difference at the time of allotment?

The Rs 5,000 difference is debited to Discount on Issue of Debentures, because the debentures are issued below their face value of Rs 100 and redeemed at par. It is a loss on issue, not a premium, reserve or interest item, and is written off over time.

  1. ACredit Securities Premium Account with Rs 5,000
  2. BDebit Discount on Issue of Debentures (loss on issue) with Rs 5,000Correct
  3. CCredit Debenture Redemption Reserve with Rs 5,000
  4. DDebit Debenture Interest Account with Rs 5,000

Explanation

Debentures issued below par but redeemable at par involve a discount of Rs 5 x 1,000 = Rs 5,000. This is debited to Discount on Issue of Debentures, a loss on issue to be written off. Crediting securities premium would apply only if issued above par.

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