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Issued at Premium and Redeemed at Par

Premium on is...

Question

Premium on issue of debentures is _________.

A

Capital Loss

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B

Capital Profit

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C

Revenue Profit

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D

Revenue Loss

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Solution

The correct option is B Capital Profit
If the debentures are issued at price more than its nominal value, such issue is called as issue of debenture on premium. The excess amount over the face value/nominal value is called debenture premium.
The premium on issue of debenture is a capital profit and this need to be transferred to capital reserve account and to be shown in the liability side of the balance sheet.
This should not be transferred to profit & loss account as it is not generated through the normal business activity.

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