Question : The Company will pay a premium at the time of their redemption. Although such premium will be paid at the time of actual redemption, as it is a known ------- the Company records such loss at the time of issue by -------- an account called, ------------------------.
Option 1: Profit, debiting, loss on issue of debentures
Option 2: Loss, credited, loss on issue of debentures
Option 3: Loss, debiting, loss on issue of debentures
Option 4: Loss, debiting, premium on redemption of debentures
Correct Answer: Loss, debiting, loss on issue of debentures
Solution : Answer = Loss, debiting, loss on issue of debentures
The known loss at the time of the debenture issue is recorded by debiting the loss account and crediting the loss on the issue of the debenture's account. This anticipatory treatment aligns with the principle of prudence, recognizing potential losses at the time of occurrence rather than waiting until redemption when the loss is realized.
Hence, the correct option is 3.
