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Which of the following statements correctly describes the accounting treatment for a premium on issue of debentures?

easy MCQ 1 mark Class 12 · Accountancy · Accounting for Debentures
  1. a) Discount on Issue of Debentures Account is credited
  2. b) Premium on Issue of Debentures Account is credited
  3. c) Debentures Account is credited
  4. d) Share Capital Account is credited
Answer
b) Premium on Issue of Debentures Account is credited

The correct answer is b) Premium on Issue of Debentures Account is credited — Therefore, option (b) is correct.

Step-by-step solution

  1. When debentures are issued at a price above face value, the excess amount is called premium.
  2. The premium is not part of the liability; it is shown separately.
  3. According to accounting principles, the Premium on Issue of Debentures Account is credited with the premium amount.
  4. Therefore, option (b) is correct.
Common mistake: Crediting the premium directly to the Debentures Account

Concept tested: Accounting for premium on issue

Published · How this solution was prepared and checked

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