Question

When debentures are issued at a discount, the discount is written off ______.

Options

• after debentures have been redeemed.

• in the year debentures are allotted.

• during the life of the debentures.

• in the year debentures are issued.

Answer 1

When debentures are issued at a discount, the discount is written off in the year debentures are allotted.

Explanation:

• Discount on issue is a capital loss that occurs when the company formally distributes (allots) the debentures.
• Under modern accounting rules, this loss cannot be spread out and must be completely written off in the very first year of allotment.
• It is cleared off immediately from the Securities Premium Account or charged to the Statement of Profit & Loss as a finance cost.