Joint Stock Accounts : Issue of Debentures — Important Questions

Neither debited nor credited

Step 1: When debentures are issued 'at par', the issue price equals the face value (e.g., ₹100 issued for ₹100). Step 2: Securities Premium Reserve is only created when debentures are issued at a premium (i.e., above face value). Step 3: Since there is no premium involved in this case (issued at par), there is no need to credit Securities Premium Reserve. Step 4: Similarly, there is no loss or discount either, so no debit arises. Step 5: The journal entry simply involves Bank A/c Dr. to Debentures A/c. Therefore, Securities Premium Reserve is neither debited nor credited.

Securities Premium Reserve Account

Step 1: When debentures are issued at a price higher than face value, the extra amount is called 'premium on issue'. Step 2: This premium is a capital profit (not earned from regular business operations). Step 3: Capital profits are NOT transferred to Profit and Loss Account. Step 4: As per accounting rules, this premium must be credited to 'Securities Premium Reserve Account'. Step 5: Capital Reserve Account is used for other capital gains (like profit on revaluation), not for issue premium. Hence, the correct answer is 'Securities Premium Reserve Account'.

Capital loss

Step 1: When debentures are issued at a price below face value (at discount), the company receives less money than it will have to repay. Step 2: This shortfall is a financial loss for the company. Step 3: Since this loss arises from a financial/funding transaction (not regular business operations), it is classified as a 'Capital Loss'. Step 4: Revenue losses arise from day-to-day business operations. Step 5: Capital profits arise from capital transactions like selling assets at a gain. Since discount on issue is a capital transaction loss, the correct classification is 'Capital Loss'.

Loss on Issue of Debentures A/c

Step 1: When debentures are issued at par (₹100) but redeemable at premium (₹105), the company will pay ₹5 more at redemption than it received at issue. Step 2: This ₹5 extra payment is a known future loss, which must be recorded at the time of allotment. Step 3: This future loss is debited to 'Loss on Issue of Debentures A/c' (a capital loss). Step 4: Simultaneously, 'Premium on Redemption of Debentures A/c' is credited (as a liability). Step 5: Securities Premium Reserve is credited only when issued at premium; Discount on Issue is debited only when issued at discount. Hence, 'Loss on Issue