Question

From the given hypothetical situation, answer the following questions (A), (B) and (C):

Floater Ltd. issued 60,000; 8% Debentures of ₹ 100 each at 5% discount and to be redeemed at 10% premium at the end of 5 years. On the date of issue, balance in Securities Premium was ₹ 8,00,000 and Statement of Profit & Loss (Dr.) was ₹ 5,00,000.

1. Loss on Issue of Debentures is to be written off as ______ out of Securities Premium and ______ out of Statement of Profit & Loss.
   1. ₹ 4,50,000; ₹ 4,50,000
   2. ₹ 6,00,000; ₹ 3,00,000
   3. ₹ 8,00,000; ₹ 1,00,000
   4. ₹ 4,00,000; ₹ 5,00,000
2. After writing off Loss on Issue of Debentures, ______ balance in Statement of Profit & Loss will be ______.
   1. Debit; ₹ 6,00,000.
   2. Credit; ₹ 6,00,000.
   3. Debit; ₹ 4,00,000.
   4. Credit; ₹ 4,00,000.
3. Premium on Redemption of Debentures account will have a balance of ______ to be treated as ______ in the first year.
   1. ₹ 9,00,000; Non-Current Liabilities
   2. ₹ 9,00,000; Current Liabilities
   3. ₹ 6,00,000; Non-Current Liabilities
   4. ₹ 6,00,000; Current Liabilities

Answer 1

(A) ₹ 8,00,000; ₹ 1,00,000

Explanation:

Total Loss on Issue of Debentures:

Discount on Issue = 60,000 × ₹ 100 × 5% = ₹ 3,00,000

Premium on Redemption = 60,000 × ₹ 100 × 10% = ₹ 6,00,000

Total Loss = ₹ 3,00,000 + ₹ 6,00,000 = ₹ 9,00,000

Out of this, ₹ 8,00,000 is written off from Securities Premium and the remaining:

₹ 9,00,000 − ₹ 8,00,000 = ₹ 1,00,000​

is written off from Statement of Profit & Loss.

(B) Debit; ₹ 6,00,000

Explanation:

Statement of Profit & Loss already has a debit balance of ₹ 5,00,000. A further ₹ 1,00,000 loss is debited to it.

₹ 5,00,000 + ₹ 1,00,000 = ₹ 6,00,000​

Therefore, the balance will be Debit ₹ 6,00,000.

(C) ₹ 6,00,000; Non-Current Liabilities

Explanation:

Premium payable on redemption:

60,000 × ₹ 100 × 10% = ₹ 6,00,000​

Since the debentures are redeemable after 5 years, the Premium on Redemption of Debentures is shown under Non-Current Liabilities in the first year.