Question

The discount on issue of debentures must be treated as____.

• A. Revenue Loss
• B. Deferred Revenue Receipt
• C. Capital Receipt
• D. Capital Loss

Answer 1

The correct option is D Capital Loss

When Shares are issued at a price lower than their face value, they are said to have been issued at a discount. For example, if a share of Rs 100 is issued at Rs 95, then Rs 5 (i.e. Rs 100—95) is the amount of discount. It is a loss to the company. Issue of Share at Discount is always below the nominal value of shares. It is debited to separate account called ‘Discount on Issue of Share’ Account and is treated as Capital loss which means the loss incurred when a capital asset, such as an investment or real estate, decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price.