Securities premium account
SECURITIES PREMIUM ACCOUNT CAN BE USED TO WRITE OFF DISCOUNT ON ISSUE OF DEBENTURES can anyone explain me the meaning of above sentence
Write off means reducing the value of something. Above statement means balance in SPR account can be used (SPR A/c ..Dr. to Discount) to write off discount. Note that discount on issue of debentures is a capital loss and is either charged against the profits over a period of time (3 to 5 years or during the duration of debentures) or against Securities Premium. Numerically, you receive 95 for Rs.100 debenture (Cash increases by 95, liabilities side by 100, 5 is shown as negative figure in liabilities). Now that 5 has to go from books during duration of debentures. So you either charge it over a period of time against profits or use Securities premium i.e. reduce securities premium by 5 and discount goes off.