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Discount on issue of debentures is a __
- a)Revenue loss to be charged in the year of issue
- b)Capital loss to be written off from capital reserve
- c)Capital loss to be written off over the tenure of the debentures
- d)Capital loss to be shown as goodwill
Correct answer is option 'C'. Can you explain this answer?
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Discount on issue of debentures is a __a)Revenue loss to be charged in...
It is capital loss as the benefit we get from such issue is for many years . Further the loss should be written off over years like we depreciate an asset.
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Discount on issue of debentures is a __a)Revenue loss to be charged in...
Understanding Discount on Issue of Debentures
When a company issues debentures at a discount, it means that the debentures are sold for less than their nominal value. This situation can have implications for how the discount is treated in financial statements.
Capital Loss Treatment
- The discount on issue of debentures is classified as a capital loss.
- This loss arises because the company receives less cash than the total obligation it will eventually need to repay.
Amortization Over Tenure
- According to accounting standards, this capital loss should not be recognized immediately in the profit and loss account.
- Instead, it is to be written off over the tenure of the debentures. This means that the loss is amortized systematically over the life of the debenture, reflecting the cost incurred to raise funds over the period it benefits the company.
Financial Reporting Implications
- By amortizing the discount, the company aligns the expense recognition with the benefits received from the funds raised through the debenture issue.
- This approach helps maintain the integrity of financial reporting, ensuring that the impact of the discount is spread out rather than causing a significant hit to profits in the year of issue.
Conclusion
- The correct treatment of discount on issue of debentures, as per option 'C', supports a more accurate representation of the company’s financial health over time, allowing stakeholders to make informed decisions based on comprehensive financial data.
This understanding is essential for CA students as it lays the foundation for proper accounting practices and financial analysis.
When a company issues debentures at a discount, it means that the debentures are sold for less than their nominal value. This situation can have implications for how the discount is treated in financial statements.
Capital Loss Treatment
- The discount on issue of debentures is classified as a capital loss.
- This loss arises because the company receives less cash than the total obligation it will eventually need to repay.
Amortization Over Tenure
- According to accounting standards, this capital loss should not be recognized immediately in the profit and loss account.
- Instead, it is to be written off over the tenure of the debentures. This means that the loss is amortized systematically over the life of the debenture, reflecting the cost incurred to raise funds over the period it benefits the company.
Financial Reporting Implications
- By amortizing the discount, the company aligns the expense recognition with the benefits received from the funds raised through the debenture issue.
- This approach helps maintain the integrity of financial reporting, ensuring that the impact of the discount is spread out rather than causing a significant hit to profits in the year of issue.
Conclusion
- The correct treatment of discount on issue of debentures, as per option 'C', supports a more accurate representation of the company’s financial health over time, allowing stakeholders to make informed decisions based on comprehensive financial data.
This understanding is essential for CA students as it lays the foundation for proper accounting practices and financial analysis.
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Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer?
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Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer?.
Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer?.
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Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer?, a detailed solution for Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer? has been provided alongside types of Discount on issue of debentures is a __a)Revenue loss to be charged in the year of issueb)Capital loss to be written off from capital reservec)Capital loss to be written off over the tenure of the debenturesd)Capital loss to be shown as goodwillCorrect answer is option 'C'. Can you explain this answer? theory, EduRev gives you an
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