Question

Which of the methods can be adopted to write off discount/loss on issue of debentures against the revenue profits?

Options

• Fixed Instalment Method

• Fluctuating Method

• Both Fixed Instalment and Fluctuating Method

• None of these

Answer 1

Both Fixed Instalment and Fluctuating Method.

Explanation:

There are two methods for writing off the discount/loss on debenture issuance against revenue profits.

1. Fixed Instalment Method: When the debentures are redeemed at the conclusion of a predetermined time, the complete amount of the discount shall be written off in equal instalments of a fixed amount over that period. For example, if the debentures are to be redeemed after 10 years, Rs.10,000 of the total discount of Rs. 1,00,000 will be written off each year.
2. Fluctuating Instalment Method: When debentures are returned in yearly drawings or in instalments, the discount should be written off in proportion to the number of debentures outstanding at the end of each accounting year. This method's discount amount decreases year after year, earning it the nickname "Reducing Instalment Method."