Question :
Citizen Ltd. issued 10,000, 6% Debentures of Rs. 100 each at a discount of 10% redeemable at 10% premium. It has Securities Premium Reserve of Rs. 1,75,000. Loss on Issue of Debentures Rs. 2,00,000 will be written off by passing the following entry
Option 1: Debited securities premium with Rs 1,75,000 and credited loss on issue of debenture account Rs 1,75,000
Option 2: Debited securities premium reserve account with Rs 1,75,000 and debited surplus in profit and loss account Rs 25,000 and credited loss on issue of debenture account Rs 2,00,000
Option 3: Debited surplus in statement of profit and loss account Rs 2,00,000 and credited loss on issue of debentures account
Option 4: None of these
Correct Answer: Debited securities premium reserve account with Rs 1,75,000 and debited surplus in profit and loss account Rs 25,000 and credited loss on issue of debenture account Rs 2,00,000
Solution : Answer = Debited securities premium reserve account with 1,75,000 and debited surplus in profit and loss account Rs 25,000 and credited loss on issue of debenture account Rs 2,00,000
Loss on Issue of Debentures = (1,00,000+1,00,000) = Rs 2,00,000
JOURNAL ENTRY
Securiites Premium Reseve A/c Dr 1,75,000
Surplus i.e. Statement in Profit & Loss A/c Dr 25,000
To Loss on Issue of Debentures A/c 2,00,000
Hence, the correct option is 2.
