Question

Assertion (A): Pilot Pens Ltd. issued 10,000, 7% Debentures of ₹ 100 each at par redeemable at a premium of ₹ 6 after 5 years. It has balance in Securities Premium of ₹ 20,000 and ₹ 10,000 in Capital Reserve Account. It will write off balance Loss on Issue of Debentures of ₹ 40,000 from Surplus, i.e., Balance in Statement of Profit & Loss.

Reason (R): Balance Loss on Issue of Debentures, i.e., ₹ 40,000 will be written off from Statement of Profit & Loss.

In the context of above two statements, which of the below options is correct?

Options

• Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

• Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).

• Assertion (A) is incorrect but Reason (R) is correct.

• Both Assertion (A) and Reason (R) are incorrect.

Answer 1

Both Assertion (A) and Reason (R) are incorrect.

Explanation:

The balance Loss on Issue of Debentures is not written off from Surplus/Balance in the Statement of Profit & Loss. It is treated as a finance cost and debited to the Statement of Profit & Loss. Therefore, according to the textbook's treatment, both Assertion and Reason are considered incorrect.