AccountancyCBSE Class 12 · Issue and Redemption of Debentures

Writing off Discount or Loss on Issue of Debentures: Class 12 Rule and Entries

Updated 15 October 2026 · Fact-checked

Under the CBSE 2026-27 syllabus, discount or loss on issue of debentures is written off in the year the debentures are allotted: first from Securities Premium, if a balance exists, and the remainder from the Statement of Profit and Loss as a finance cost, following AS 16. One combined entry debits both sources and credits the loss account.

Write off in the allotment year: use Securities Premium first, then charge the remainder to Profit and Loss as finance cost.

Illustration drawn for QuestionBuddy.

Understand Writing off Discount or Loss on Issue of Debentures

What has to be written off? When debentures are issued at a discount, or are redeemable at a premium, the company records Discount on Issue or Loss on Issue of Debentures (see Issue of Debentures with Terms of Redemption). This is a cost of borrowing, not an asset with future value, so it must be written off.

The syllabus rule (AS 16, Borrowing Costs). Discount or loss on issue is written off in the year in which the debentures are allotted:
1. First from Securities Premium (if a balance exists, including premium received in the same year on any issue of shares or debentures);
2. Then the balance from the Statement of Profit and Loss as finance cost.

Entry.

Securities Premium A/c Dr (up to its balance)
Statement of Profit and Loss Dr (finance cost; the remainder)
To Discount/Loss on Issue of Debentures A/c

Why Securities Premium first? The Companies Act, 2013 (Section 52) allows Securities Premium to be used for specific purposes, including writing off discount on issue of debentures and premium payable on their redemption. Using it first protects the year's revenue profit.

After the write-off. The Discount/Loss on Issue account closes at nil, so nothing about it appears in the year-end balance sheet. The Premium on Redemption of Debentures (a liability) stays until redemption, and Securities Premium shows only its remaining balance under Reserves and Surplus.

Finance cost in the Statement of Profit and Loss. Finance cost for the year = interest on debentures (on face value, for the months outstanding) + any part of the loss written off from profit.

Writing off Discount or Loss on Issue of Debentures: key facts

Amount from Securities Premium: Lower of (loss on issue, Securities Premium balance); Include premium received in the same year.
Amount from Statement of Profit and Loss: Loss on issue − amount written off from Securities Premium; Shown as finance cost.
Finance cost of the year: Debenture interest + loss written off to profit and loss
Securities Premium left: Opening balance + premium received − amount used

How to answer Writing off Discount or Loss on Issue of Debentures questions

Write-off questions are short if you know two numbers: the loss on issue and the Securities Premium available.

1Compute loss on issue = discount + redemption premium.
2Add up Securities Premium available: opening balance plus any premium received this year.
3Write off from Securities Premium up to its balance.
4Charge the remainder to the Statement of Profit and Loss as finance cost.
5Pass one combined entry crediting Discount/Loss on Issue of Debentures.
6If asked, add debenture interest to find total finance cost.

Writing off Discount or Loss on Issue of Debentures in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Using reserves before profits

Suppose the finance manager of Hillcrest Tiles Ltd (a fictional company) has a Loss on Issue of Debentures of ₹24,000 from this year's debenture issue. The company's Securities Premium stands at ₹10,000. The directors want to show as high a profit as the rules allow.

How should the loss be written off, and how much will reduce this year's profit?

Try it first, then show the solutionSolution

Write off from Securities Premium first: ₹10,000.
Remainder from the Statement of Profit and Loss: 24,000 − 10,000 = ₹14,000.
Entry: Securities Premium Dr 10,000; Statement of Profit and Loss Dr 14,000; To Loss on Issue of Debentures 24,000.

Answer: ₹10,000 comes from Securities Premium and only ₹14,000 reduces this year's profit as a finance cost. The rule itself helps the directors: Securities Premium must be used first, and the whole loss is cleared in the year of allotment.

Memory hook: Premium pays first, profit pays the rest, all in year one.

Tricks to remember Writing off Discount or Loss on Issue of Debentures

Short memory aids. Say each one aloud once, then use it on a question the same day.

SP before P&L
Securities Premium before Profit and Loss: alphabetical order of their initials, SP then P.
Use it when: Order of write-off.
Year one, clean slate
The loss is fully written off in the year of allotment; it never sits in the balance sheet at year-end.
Use it when: Balance sheet questions.
Finance cost = Interest + Loss
Both debenture costs land in finance costs.
Use it when: Statement of Profit and Loss questions.

Writing off Discount or Loss on Issue of Debentures: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Split between the two sources · 1 mark · MCQBoard level

Loss on Issue of Debentures is ₹30,000, and the Securities Premium balance is ₹20,000. The amounts written off from Securities Premium and the Statement of Profit and Loss are:
(a) ₹30,000 and nil
(b) ₹20,000 and ₹10,000
(c) ₹10,000 and ₹20,000
(d) nil and ₹30,000

Try it first, then show the solutionSolution

Securities Premium first, up to ₹20,000; the remaining ₹10,000 from profit and loss.

Answer: (b) ₹20,000 and ₹10,000

Example 2: No Securities Premium available · 3 marks · Short answerBoard level

A company issued 2,000 debentures of ₹100 each at a discount of 5%, redeemable at par. It has no Securities Premium. Pass the entry for writing off the discount at the end of the year of allotment. (3 marks)

Try it first, then show the solutionSolution

Discount = 2,000 × 5 = ₹10,000.
No Securities Premium, so all from the Statement of Profit and Loss.
Statement of Profit and Loss Dr 10,000 To Discount on Issue of Debentures A/c 10,000.

Answer: Statement of Profit and Loss Dr ₹10,000 To Discount on Issue of Debentures A/c ₹10,000 (finance cost).

Example 3: Premium on the same issue counts · 4 marks · Short answerHarder board level

A company with an opening Securities Premium of ₹5,000 issued 4,000 debentures of ₹100 each at a premium of 5%, redeemable at a premium of 10%. Pass the issue entry (single application and allotment) and the write-off entry. (4 marks)

Try it first, then show the solutionSolution

Issue: Debenture Application and Allotment Dr 4,20,000; Loss on Issue Dr 40,000; To Debentures 4,00,000; To Securities Premium 20,000; To Premium on Redemption 40,000.
Securities Premium available = 5,000 + 20,000 = 25,000.
Write-off: Securities Premium Dr 25,000; Statement of Profit and Loss Dr 15,000; To Loss on Issue of Debentures 40,000.

Answer: ₹25,000 from Securities Premium and ₹15,000 from the Statement of Profit and Loss.

Example 4: Premium from a share issue · 3 marks · Short answerHarder board level

During the year a company issued equity shares at a premium, collecting Securities Premium of ₹15,000 (no opening balance). It also issued 1,000 debentures of ₹100 each at a 10% discount, redeemable at par. Pass the write-off entry and state the Securities Premium left. (3 marks)

Try it first, then show the solutionSolution

Discount = 1,000 × 10 = ₹10,000.
Securities Premium of ₹15,000 is enough: Securities Premium Dr 10,000 To Discount on Issue of Debentures 10,000.
Left = 15,000 − 10,000 = ₹5,000.

Answer: Entire discount of ₹10,000 from Securities Premium; ₹5,000 remains under Reserves and Surplus.

Example 5: Issue, write-off and finance cost · 6 marks · Long answerHOTS / competency

On 1st April 2025, a company with Securities Premium of ₹20,000 issued 5,000, 9% debentures of ₹100 each at a discount of 6%, redeemable at a premium of 5%. Pass the journal entries for issue and write-off, and calculate the total finance cost for the year ended 31st March 2026. (6 marks)

Try it first, then show the solutionSolution

Cash = 5,000 × 94 = 4,70,000: Bank Dr 4,70,000 To Debenture Application and Allotment 4,70,000.
Loss on issue = 5,000 × (6 + 5) = 55,000. Debenture Application and Allotment Dr 4,70,000; Loss on Issue Dr 55,000; To 9% Debentures 5,00,000; To Premium on Redemption 25,000.
Write-off: Securities Premium Dr 20,000; Statement of Profit and Loss Dr 35,000; To Loss on Issue 55,000.
Interest = 5,00,000 × 9% = 45,000.
Finance cost = 45,000 + 35,000 = ₹80,000.

Answer: Write-off: ₹20,000 from Securities Premium and ₹35,000 to profit and loss. Finance cost for the year = ₹80,000.

Example 6: Timing of the write-off · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): As per the CBSE syllabus, loss on issue of debentures is written off in the year of allotment.
Reason (R): It is written off first from Securities Premium, if it exists, and then from the Statement of Profit and Loss as finance cost, in line with AS 16.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Both statements are true parts of the same syllabus note.
R explains the sources of the write-off, not why it happens in the year of allotment.

Answer: (b) Both A and R are true, but R is not the correct explanation of A.

Where students lose marks in Writing off Discount or Loss on Issue of Debentures

The slips examiners see most often, and what to write instead.

Mistake: Writing off the loss over the life of the debentures
Following older practice.
Wrong working
Writing off ₹11,000 a year over five years.
Right working
Write off the whole ₹55,000 in the year of allotment.
Do this: Follow the 2026-27 syllabus note.
Usually costs: 1-2 marks.
Mistake: Going straight to profit and loss
Ignoring Securities Premium.
Wrong working
Statement of Profit and Loss Dr 55,000 To Loss on Issue 55,000
Right working
Securities Premium Dr 20,000; Statement of Profit and Loss Dr 35,000
Do this: Check for a Securities Premium balance first.
Usually costs: 1 mark.
Mistake: Forgetting the premium received in the same year
Looking only at the opening balance.
Wrong working
Securities Premium available = 5,000.
Right working
5,000 + 20,000 received on this issue = 25,000.
Do this: Include all premium received during the year.
Usually costs: 1 mark.
Mistake: Showing the loss as an asset at year-end
Treating it like deferred expenditure.
Wrong working
Other non-current assets: Loss on Issue 35,000.
Right working
Fully written off; nothing remains.
Do this: The loss account closes in the year of allotment.
Usually costs: 1 mark.

Exam tips

State the rule in one line before the entry: 'written off in the year of allotment, first from Securities Premium, then from profit and loss'.
Write 'Statement of Profit and Loss (finance cost)' as the debit name.
If both shares and debentures are issued in the year, pool the premium.
Write-off appears as a 1-mark MCQ and inside 3- and 4-mark debenture questions.

Practice questions on Writing off Discount or Loss on Issue of Debentures

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
Discount on issue of debentures is first written off from:
(a) Statement of Profit and Loss
(b) General Reserve
(c) Securities Premium
(d) Capital Reserve
Hint
SP before P&L.
Answer
(c) Securities Premium
Q2 · 1 mark · MCQBoard level
The part of loss on issue of debentures written off from the Statement of Profit and Loss is shown as:
(a) other expenses
(b) finance costs
(c) exceptional items
(d) depreciation
Hint
AS 16.
Answer
(b) finance costs
Q3 · 3 marks · Short answerBoard level
Loss on issue of debentures is ₹12,000 and Securities Premium is ₹5,000. Pass the write-off entry. (3 marks)
Hint
Split 5,000 and 7,000.
Answer
Securities Premium A/c Dr 5,000; Statement of Profit and Loss Dr 7,000; To Loss on Issue of Debentures A/c 12,000.
Q4 · 3 marks · Short answerHarder board level
Discount on issue of debentures is ₹8,000 and the Securities Premium balance is ₹15,000. Pass the write-off entry and state the Securities Premium left. (3 marks)
Hint
Premium covers it all.
Answer
Securities Premium A/c Dr 8,000 To Discount on Issue of Debentures A/c 8,000. Securities Premium left = ₹7,000.
Q5 · 3 marks · Short answerHarder board level
1,000 debentures of ₹500 each were issued at a discount of 4%, redeemable at a premium of 6%. There is no Securities Premium. Calculate the loss on issue and pass the write-off entry. (3 marks)
Hint
Per debenture: 20 + 30.
Answer
Loss = 1,000 × (20 + 30) = ₹50,000. Statement of Profit and Loss Dr 50,000 To Loss on Issue of Debentures A/c 50,000.
Q6 · 3 marks · Short answerHarder board level
2,000 debentures of ₹100 each were issued at a premium of 10%, redeemable at a premium of 5%. There was no opening Securities Premium. Pass the write-off entry and state the Securities Premium left. (3 marks)
Hint
Premium on this issue is 20,000.
Answer
Loss on issue = 10,000; Securities Premium = 20,000. Securities Premium A/c Dr 10,000 To Loss on Issue of Debentures A/c 10,000. Left = ₹10,000.
Q7 · 3 marks · Short answerHarder board level
On 1st October 2025, a company issued 8% debentures of ₹3,00,000 at a discount of 5%, redeemable at par. It has no Securities Premium. Calculate the total finance cost for the year ended 31st March 2026. (3 marks)
Hint
Interest for 6 months plus the discount.
Answer
Interest = 3,00,000 × 8% × 6/12 = 12,000; discount = 15,000 written off to profit and loss; finance cost = ₹27,000.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): Loss on issue of debentures is written off over the life of the debentures.
Reason (R): The CBSE syllabus requires it to be written off in the year of allotment, first from Securities Premium.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Year of allotment.
Answer
(d) A is false, but R is true.
Q9 · 3 marks · Short answerHOTS / competency
A company wrote off a loss on issue of debentures of ₹40,000, charging ₹25,000 to the Statement of Profit and Loss. What was the Securities Premium available, and what is left after the write-off? (3 marks)
Hint
Profit and loss is used only after premium is exhausted.
Answer
Amount from Securities Premium = 40,000 − 25,000 = ₹15,000. Since profit and loss was charged, the premium must have been fully used: it was ₹15,000, and nil is left.
Q10 · 3 marks · Short answerHOTS / competency
Explain why the syllabus requires loss on issue of debentures to be written off from Securities Premium before profit and loss. (3 marks)
Hint
Nature of Securities Premium; Section 52.
Answer
Securities Premium is a capital receipt that cannot be distributed as dividend; the Companies Act, 2013 (Section 52) permits its use for writing off discount on issue of debentures and premium on their redemption. Using it first keeps the year's revenue profit, available for dividend, intact, and only the shortfall becomes a finance cost under AS 16.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.In which year is loss on issue of debentures written off?Show answer
The year of allotment.
2.Loss 18,000; Securities Premium 25,000: how much from profit and loss?Show answer
Nil.
3.Under which head is the profit-and-loss part shown?Show answer
Finance costs.
4.Which standard does the syllabus cite?Show answer
AS 16 (Borrowing Costs).
5.Does premium received on this year's share issue count as available?Show answer
Yes.

Writing off Discount or Loss on Issue of Debentures: frequently asked questions

How is loss on issue of debentures written off in Class 12?

In the year of allotment, first from Securities Premium (if any) and the balance from the Statement of Profit and Loss as finance cost.

Is discount on issue treated the same way as loss on issue?

Yes. Both are written off in the year of allotment, Securities Premium first.

Does Premium on Redemption of Debentures also disappear after the write-off?

No. It is a liability payable at redemption and stays in the balance sheet until then; only the loss account is written off.

What is total finance cost when debentures are issued at a discount?

Debenture interest for the year plus any part of the discount or loss charged to the Statement of Profit and Loss.