Question

A company issued 5,000, 10% Debentures of ₹ 100 each at a discount of 5%. To write off the capital loss, it has to use its profits in a certain order.

Choose the correct order in which the profits are used by the company to write off the capital loss:

P Statement of Profit & Loss

Q Capital Reserve

R Securities Premium

Options

• P, Q, R

• R, P, Q

• R, Q, P

• Q, P, R

Answer 1

R, P, Q

Explanation:

• Securities Premium (R): This reserve is specifically created for writing off capital losses on the issue of shares or debentures at a discount.
• Statement of Profit & Loss (P): If the Securities Premium is insufficient, the remaining loss can be written off from the profits of the current year.
• Capital Reserve (Q): This is the last resort. Capital Reserve is used only when Securities premiums and current year profits are insufficient to cover the capital loss.