AccountsISC Class 12 · Issue of Debentures

Loss on Issue of Debentures: ISC Class 12 Accounts

Updated 16 October 2026 · Fact-checked

Loss on issue of debentures is the discount allowed on issue plus any premium payable on redemption. It is a capital loss. The ISC syllabus requires it to be written off in the year it arises: first from Securities Premium, then from the Statement of Profit and Loss, and lastly from Capital Reserve.

Understand Loss on Issue of Debentures

What makes up the loss. When a company receives less than face value (discount) or must repay more than face value (premium on redemption), the difference is a capital loss. Both parts go to a single Loss on Issue of Debentures A/c, debited at the time of allotment.

Issue at discount, redeem at par: loss = discount.
Issue at par, redeem at premium: loss = redemption premium.
Issue at discount, redeem at premium: loss = discount + redemption premium.
Issue at premium, redeem at premium: loss = redemption premium (the issue premium goes separately to Securities Premium).

ISC rule: write it off in the same year. The CISCE syllabus states that all capital losses are written off in the year in which they occur, in this order:
1. Securities Premium;
2. Statement of Profit and Loss;
3. Capital Reserve.
The entry: Securities Premium A/c Dr; Statement of Profit and Loss Dr; (Capital Reserve Dr); To Loss on Issue of Debentures A/c. So, in ISC answers, Loss on Issue does not appear in the year-end Balance Sheet. ISC examiners in 2024 noted candidates who wrote off the whole loss from revenue profits or carried it forward instead of using Securities Premium.

Securities Premium as a source. Securities Premium may be used to write off discount or expenses on issue of securities. Any premium received during the year (on shares or debentures) adds to the balance available.

Working backwards. Because the loss is written off from Securities Premium first, a fall in the premium balance reveals the loss; subtract any redemption premium to find the discount, and divide by face value to find the rate. A question of this type was asked in 2024.

Premium on Redemption is not written off. It remains a liability under Other Long-term Liabilities until the debentures are redeemed; only the matching loss is written off.

Loss on Issue of Debentures: key facts

Loss on issue: Loss = Discount on issue + Premium on redemption; Per debenture × number of debentures.
ISC write-off order: Securities Premium
Statement of Profit and Loss
Capital Reserve; In the year the loss occurs.
Write-off entry: Securities Premium Dr + Statement of P&L Dr (+ Capital Reserve Dr) = Loss on Issue Cr
Rate of discount from premium balances: Rate = (Fall in Securities Premium − Redemption premium) ÷ Face value of issue × 100; When the whole loss came out of Securities Premium.
Number of debentures: Number = Loss ÷ (Discount + Redemption premium per debenture)

How to answer Loss on Issue of Debentures questions

Loss on issue is a 1- or 3-mark ISC item, and the write-off step is often forgotten in longer issue questions.

1Find discount per debenture and premium on redemption per debenture.
2Multiply by the number issued; that is the debit to Loss on Issue at allotment.
3List the Securities Premium available, including premium received in the year.
4Write off from Securities Premium, then the Statement of Profit and Loss, then Capital Reserve.
5Prepare the Loss on Issue A/c if asked; it must close with no balance.
6Leave Premium on Redemption in Other Long-term Liabilities.

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 a premium fund to absorb a loss

Suppose a sports club issues 40 bonds of ₹1,000 each but, to attract buyers, sells them at ₹950 while promising to repay ₹1,000. The club has ₹1,500 in a fund built from earlier 'extra' money paid by members.

What is the club's total loss on issue, and how much falls on this year's surplus if the fund is used first?

Try it first, then show the solutionSolution

Loss = 40 × (1,000 − 950) = ₹2,000.
Use the fund first: ₹1,500; the rest, ₹500, comes from this year's surplus.

Answer: Loss ₹2,000: ₹1,500 from the fund and ₹500 from this year's surplus.

Memory hook: Premium pays first, profit pays next.

Tricks to remember Loss on Issue of Debentures

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

S-P-C
Securities Premium, then P&L, then Capital Reserve: the ISC order for capital losses.
Use it when: Writing off the loss.
Gap in, gap out
Loss = gap at issue (below face) + gap at redemption (above face).
Use it when: Computing the loss.
Write off the loss, keep the liability
Loss on Issue disappears in the year; Premium on Redemption stays until repayment.
Use it when: Balance Sheet questions.

Loss on Issue of Debentures: solved examples

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

Example 1: When the loss is written off · 1 mark · MCQBoard level

Under the CISCE syllabus, loss on issue of debentures is written off:
(a) over the life of the debentures
(b) in the year of redemption
(c) in the year in which it occurs
(d) only out of Capital Reserve

Try it first, then show the solutionSolution

The syllabus states that all capital losses are written off in the year they occur.
Order: Securities Premium, P&L, Capital Reserve.

Answer: (c) in the year in which it occurs

Example 2: Loss fully covered by Securities Premium · 3 marks · Short answerBoard level

Fern Ltd issued 2,400, 8% Debentures of ₹100 each at a discount of 5%, redeemable at par. Its Securities Premium balance is ₹20,000. Pass the entry to write off the loss. (3 marks)

Try it first, then show the solutionSolution

Loss = 2,400 × 5 = ₹12,000.
Securities Premium (₹20,000) is enough.
Securities Premium A/c Dr 12,000; To Loss on Issue of Debentures A/c 12,000.

Answer: ₹12,000 written off from Securities Premium; ₹8,000 premium remains.

Example 3: Premium not enough · 3 marks · Short answerHarder board level

Gulmohar Ltd issued 5,000, 9% Debentures of ₹100 each at a discount of 2%, redeemable at a premium of 4%. Securities Premium has ₹12,000. Calculate the loss and pass the write-off entry. (3 marks)

Try it first, then show the solutionSolution

Loss = 5,000 × (2 + 4) = ₹30,000.
Securities Premium ₹12,000; balance ₹18,000 from the Statement of Profit and Loss.
Securities Premium Dr 12,000; Statement of Profit and Loss Dr 18,000; To Loss on Issue 30,000.

Answer: Loss ₹30,000: ₹12,000 from Securities Premium, ₹18,000 from the Statement of Profit and Loss.

Example 4: Loss on Issue of Debentures Account · 6 marks · Long answerHarder board level

Hibiscus Ltd issued 10,000, 8% Debentures of ₹100 each at a discount of 5%, redeemable at a premium of 2.5%. Securities Premium has ₹30,000. Prepare the Loss on Issue of Debentures A/c for the year. (6 marks)

Try it first, then show the solutionSolution

Allotment: Debenture Application & Allotment Dr 9,50,000; Loss on Issue Dr 75,000; To 8% Debentures 10,00,000; To Premium on Redemption 25,000.
Loss on Issue A/c Dr side: To 8% Debentures A/c 50,000 (discount); To Premium on Redemption of Debentures A/c 25,000.
Cr side: By Securities Premium A/c 30,000; By Statement of Profit and Loss 45,000.
Both sides ₹75,000; the account closes.

Answer: Loss ₹75,000 written off: ₹30,000 from Securities Premium and ₹45,000 from the Statement of Profit and Loss.

Example 5: Finding the rate of discount · 6 marks · Long answerHOTS / competency

Ixora Ltd issued 8,000 Debentures of ₹100 each at a discount, redeemable at a premium of 2%. After writing off the whole loss on issue, its Securities Premium fell from ₹75,000 to ₹19,000. Find the rate of discount. (6 marks)

Try it first, then show the solutionSolution

Loss = 75,000 − 19,000 = ₹56,000.
Redemption premium = 8,000 × 2 = ₹16,000.
Discount = 56,000 − 16,000 = ₹40,000.
Rate = 40,000 ÷ 8,00,000 × 100 = 5%.

Answer: Debentures were issued at a 5% discount.

Example 6: Issued at a premium, redeemed at a higher premium · 3 marks · Short answerHOTS / competency

Jacaranda Ltd issued 2,000 Debentures of ₹100 at a premium of 4%, redeemable at a premium of 10%. There is no other Securities Premium. How much of the loss is charged to the Statement of Profit and Loss? (3 marks)

Try it first, then show the solutionSolution

Securities Premium from this issue = 2,000 × 4 = ₹8,000.
Loss on Issue = 2,000 × 10 = ₹20,000.
From the Statement of Profit and Loss = 20,000 − 8,000 = ₹12,000.

Answer: ₹12,000 is charged to the Statement of Profit and Loss.

Where students lose marks in Loss on Issue of Debentures

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

Mistake: Writing off from revenue profits first
Ignoring Securities Premium.
Wrong working
Statement of P&L Dr 30,000; To Loss on Issue 30,000
Right working
Securities Premium Dr 12,000; Statement of P&L Dr 18,000
Do this: Use Securities Premium first; ISC examiners in 2024 reported this error.
Usually costs: 1 mark.
Mistake: Carrying the loss forward
Spreading it over the debenture's life.
Wrong working
Loss on Issue shown under Other Non-current Assets
Right working
Written off in full in the year
Do this: The ISC syllabus requires write-off in the year of occurrence.
Usually costs: 1 mark.
Mistake: Leaving out the redemption premium
Treating only the discount as the loss.
Wrong working
Loss = 5,000 × 2 = 10,000
Right working
Loss = 5,000 × (2 + 4) = 30,000
Do this: Add both gaps.
Usually costs: 1 mark.
Mistake: Writing off Premium on Redemption
Confusing the liability with the loss.
Wrong working
Premium on Redemption Dr; To Statement of P&L
Right working
Premium on Redemption stays as a liability
Do this: It is paid only on redemption.
Usually costs: 1 mark.

Exam tips

Write a working: discount per debenture + premium per debenture = loss per debenture.
Show the Securities Premium available before writing off.
Close the Loss on Issue A/c; it must not have a year-end balance in ISC answers.
When asked for a rate, show the formula and the face value used.

Practice questions on 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
Under the ISC syllabus, the first source used to write off loss on issue of debentures is:
(a) Capital Reserve
(b) General Reserve
(c) Securities Premium
(d) Statement of Profit and Loss
Hint
S-P-C.
Answer
(c) Securities Premium
Q2 · 1 mark · MCQBoard level
Loss on issue of debentures consists of:
(a) discount on issue only
(b) premium on redemption only
(c) discount on issue and premium on redemption
(d) interest on debentures
Hint
Two gaps.
Answer
(c) discount on issue and premium on redemption
Q3 · 3 marks · Short answerBoard level
1,500 Debentures of ₹100 each are issued at a 5% discount, redeemable at par. Securities Premium is ₹20,000. Calculate the loss and pass the write-off entry. (3 marks)
Hint
₹5 per debenture.
Answer
Loss ₹7,500. Securities Premium A/c Dr 7,500; To Loss on Issue of Debentures A/c 7,500.
Q4 · 3 marks · Short answerHarder board level
7,000 Debentures of ₹100 each are issued at par, redeemable at a premium of 8%. Securities Premium is ₹40,000. Show how the loss is written off. (3 marks)
Hint
Loss ₹56,000.
Answer
Securities Premium ₹40,000; Statement of Profit and Loss ₹16,000.
Q5 · 3 marks · Short answerHarder board level
4,000 Debentures of ₹100 each were issued at a 3% discount. The total loss on issue was ₹36,000. At what rate of premium are they redeemable? (3 marks)
Hint
Remove the discount first.
Answer
Discount ₹12,000; redemption premium ₹24,000 = 6%.
Q6 · 1 mark · Assertion-reasonHarder board level
Assertion (A): In ISC answers, Loss on Issue of Debentures does not appear in the year-end Balance Sheet.
Reason (R): The syllabus requires capital losses to be written off in the year in which they occur.
(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
Same-year rule.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q7 · 6 marks · Long answerHarder board level
During the year a company issued 2,000 Debentures of ₹100 at a 5% discount, redeemable at par, and 3,000 Debentures of ₹100 at par, redeemable at a 5% premium. Securities Premium is ₹9,000. Prepare the Loss on Issue A/c totals and write-off. (6 marks)
Hint
Two issues, one loss account.
Answer
Loss = 10,000 + 15,000 = ₹25,000; written off: Securities Premium ₹9,000; Statement of Profit and Loss ₹16,000.
Q8 · 3 marks · Short answerHarder board level
After the issue in the previous question, which of these appear in the year-end Balance Sheet: Loss on Issue of Debentures, Premium on Redemption of Debentures? Give amounts and heads. (3 marks)
Hint
One is written off; one is a liability.
Answer
Loss on Issue: nil (written off). Premium on Redemption ₹15,000 under Non-current Liabilities → Other Long-term Liabilities.
Q9 · 6 marks · Long answerHOTS / competency
In the same year, a company issued 10,000 shares of ₹10 at a premium of ₹2, and 5,000 Debentures of ₹100 at a 6% discount, redeemable at a 4% premium. There was no opening Securities Premium. Calculate the loss and show its write-off. (6 marks)
Hint
Premium from the share issue is available.
Answer
Securities Premium ₹20,000; loss ₹50,000. Securities Premium Dr 20,000; Statement of Profit and Loss Dr 30,000; To Loss on Issue 50,000.
Q10 · 3 marks · Short answerHOTS / competency
Debentures of ₹100 each were issued at a 4% discount, redeemable at a 5% premium. The total loss on issue was ₹27,000. How many debentures were issued? (3 marks)
Hint
Loss per debenture ₹9.
Answer
27,000 ÷ 9 = 3,000 debentures.

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.Issue at 3% discount, redeem at 2% premium: loss per ₹100?Show answer
₹5.
2.Third source in the ISC write-off order?Show answer
Capital Reserve.
3.Is Premium on Redemption written off with the loss?Show answer
No; it stays a liability.
4.Which account is debited with discount on issue of debentures?Show answer
Loss on Issue of Debentures A/c.
5.Can premium received on shares in the same year be used?Show answer
Yes; it is part of Securities Premium.

Loss on Issue of Debentures: frequently asked questions

Why does ISC not spread the loss over the life of the debentures?

The CISCE syllabus explicitly requires capital losses to be written off in the year they occur.

Is loss on issue a revenue expense?

No. It is a capital loss, which is why Securities Premium is used first.

What if a question gives no Securities Premium?

Write off the whole loss from the Statement of Profit and Loss, and from Capital Reserve only if needed.

Is premium on issue of debentures a gain?

It is credited to Securities Premium, a capital reserve with restricted uses, not to profit.