Name the head under which ‘discount on issue of debentures’ appears in the Balance Sheet of a company.
Answers
Answer: Miscellaneous Expenditures
Explanation: Discount on issue of debentures’ appears as Miscellaneous Expenditures in the Balance Sheet of a company.
Since it is a capital loss, it is written off from the profit of the upcoming years. It is therefore shown under the head “Miscellaneous Expenditures” on the Asset side of the Balance Sheet. It appears in the balance sheet till such time it is written off.
Discount on issue of debentures can be written off in two ways.
First Method:
Under this method, the entire discounted amount on debenture is divided over the debenture period equally. The amount which is arrived after dividing them equally on the basis of the tenure of the denture period is then charged to Profit and Loss account for those number of years. This accounting method is followed in those cases where the debentures are redeemed at the end of a particular period.
Second Method:
Under this method the discounted amount is written off each year in proportion to the amount used every year. This accounting method is followed when redemption of debentures is made each year by issuing a notice and by draw of lots.
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