Question : Which of the following statements is incorrect?
Option 1: Premium on Issue of Debentures is a capital profit
Option 2: Premium on Issue of debentures are shown on the Equity and Liabilities side under the head ‘Reserves and Surplus’
Option 3: It is a liability and appears under the head “Non-Current Liabilities” under sub-head ‘Other Long term Liabilities’ till the redemption
Option 4: All of the above
Correct Answer: Premium on Issue of Debentures is a capital profit
Solution : Answer = Premium on Issue of Debentures is a capital profit
Premium on redemption of debentures is not a capital nature profit. Premium on Issue of Debentures is not a capital profit but rather a liability for the company. It is shown on the Equity and Liabilities side under the head ‘Reserves and Surplus’ until the debentures are redeemed.
Hence, the correct option is 1.
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