Question

JOURNAL
Date	Particulars	L.F.	Dr. (₹)	Cr. (₹)
2025 April 1	Debentures Application and Allotment A/c   ....Dr.		10,00,000	-
	Loss on Issue of Debentures A/c   ...Dr.		4,00,000	-
	To 8% Debentures A/c		-	10,00,000
	To Premium on Redemption of Debentures A/c		-	4,00,000
	(Issue of 10,000, 8% Debentures)
2026 March 31	Statement of Profit & Loss   ...Dr.		4,00,000	-
	To Loss on Issue of Debentures A/c		-	4,00,000
	(Loss on issue of debentures written off)

What will be the effect of writing off loss on issue of debenture on:

1. Cash Flow from Operating Activities, and
2. Cash Flow from Financing Activity?

Answer 1

1. It will be added back by ₹ 4,00,000 to the net profit because writing off the loss through the Statement of Profit & Loss reduces the net profit, but since it is a non-operating and non-cash item, it must be added back to calculate the correct cash flow from operating activities.
2. There will be no effect because writing off the loss is purely an internal book entry that does not involve any actual movement of cash or cash equivalents.