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

Sunrise Ltd has a discount on issue of debentures of Rs 30,000 and a securities premium account balance of Rs 2,00,000. If the company chooses to write off the whole discount against securities premium, what is the effect on the balances?

Securities premium falls to Rs 1,70,000 and the discount account is cleared. Writing off the discount against securities premium, as Section 52(2)(c) allows, debits the premium account and credits the discount account by Rs 30,000, with no charge to profit.

  1. ASecurities premium falls to Rs 1,70,000 and the discount account is clearedCorrect
  2. BSecurities premium rises to Rs 2,30,000
  3. CDiscount remains and profit is reduced by Rs 30,000
  4. DSecurities premium is unchanged and the discount moves to reserves

Explanation

Debit securities premium and credit discount on issue of debentures with Rs 30,000. Securities premium becomes Rs 2,00,000 - 30,000 = Rs 1,70,000 and the discount account is nil. Charging profit instead is a different treatment and not what the question describes.

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