Question : If the debenture is redeemed at a premium, then premium payable on redemption of debentures is a ____________.
Option 1: Asset Account
Option 2: Liability Account
Option 3: Expense Account
Option 4: Income Account
Correct Answer: Liability Account
Solution : Answer = Liability Account
If the debenture is redeemed at a premium, the premium on redemption of the debenture is the non-current liabilities of the firm. The premium payable on the redemption of debentures represents an obligation of the company to pay an additional amount over the face value of the debentures upon redemption. Since it represents a liability or an obligation, the premium payable on redemption of debentures is classified as a liability account on the balance sheet.
Hence, the correct option is 2.
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