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

Step 1: Identify Amount to Write Off and Available Premium:
Discount on Issue to be written off = Rs 1,50,000.
Available balance in Securities Premium Account = Rs 1,00,000.
Step 2: Apply Write-off Priority Rules:
Discount/Loss on issue of debentures should preferably be written off against Securities Premium first. Any remaining balance is charged to the Statement of Profit and Loss.
Step 3: Allocate the Write-off:
Amount written off from Securities Premium = Rs 1,00,000 (using the entire available balance).
Remaining Discount = Total Discount - Amount written off from Premium
Remaining Discount = Rs 1,50,000 - Rs 1,00,000 = Rs 50,000.
This remaining Rs 50,000 must be written off against the Statement of Profit and Loss.
Conclusion:
The discount will be written off as Rs 1,00,000 from Securities Premium and Rs 50,000 from the Statement of Profit and Loss.