Question

Zeba Limited issued 15,000, 9% debentures of Rs 100 each at 10% discount on 1st April, 2023. It has a balance of Rs 1,00,000 in Securities Premium Account. The 'Discount on issue of Debentures' of Rs 1,50,000 will be written off : 
 

• A. Rs 1,00,000 out of Securities Premium Account and Rs 50,000 out of Statement of Profit and Loss
• B. Rs 50,000 out of Securities Premium Account and Rs 1,00,000 out of Statement of Profit and Loss
• C. Rs 1,50,000 out of Securities Premium Account
• D. Rs 1,50,000 out of Statement of Profit and Loss

Hint:

Priority for writing off discount/loss on issue of debentures: 1st - Securities Premium, 2nd - Statement of Profit and Loss. Utilize the Securities Premium balance fully before charging the P\.

Answer 1

The Correct Option is A

To solve the problem, we need to determine the amount written off as 'Discount on Issue of Debentures' from the Securities Premium Account and the Statement of Profit and Loss for Zeba Limited, which issued 15,000, 9% debentures of Rs 100 each at a 10% discount on 1st April 2023, with a balance of Rs 1,00,000 in the Securities Premium Account.

1. Calculating the Total Nominal Value of Debentures:
The nominal value of each debenture is Rs 100, and the company issued 15,000 debentures. Therefore, the total nominal value is:

\( 15,000 \times 100 = 1,500,000 \, \text{Rs} \)

2. Determining the Issue Price and Total Discount:
The debentures are issued at a 10% discount, so the issue price per debenture is:

\( 100 \times (1 - 0.10) = 90 \, \text{Rs} \)
The total amount received from issuing the debentures is:

\( 15,000 \times 90 = 1,350,000 \, \text{Rs} \)
The total discount on the issue of debentures is:

\( 1,500,000 - 1,350,000 = 150,000 \, \text{Rs} \)

3. Using the Securities Premium Account:
The company has a balance of Rs 1,00,000 in the Securities Premium Account. According to accounting standards, the discount on the issue of debentures can be written off using the Securities Premium Account first. Therefore, Rs 1,00,000 of the discount is written off from the Securities Premium Account:

\( 1,00,000 \, \text{Rs from Securities Premium Account} \)

4. Writing Off the Remaining Discount:
The remaining discount to be written off is:

\( 150,000 - 1,00,000 = 50,000 \, \text{Rs} \)
This remaining amount is written off from the Statement of Profit and Loss:

\( 50,000 \, \text{Rs from Statement of Profit and Loss} \)

Final Answer:
The 'Discount on Issue of Debentures' of Rs 1,50,000 will be written off as Rs 1,00,000 from the Securities Premium Account and Rs 50,000 from the Statement of Profit and Loss. The correct option is A.