Question

If an item titled 'Premium on Redemption of Debentures' is visible inside a corporate balance sheet, under which primary classification category heading must it be presented?

• A. \( \text{Non-Current Liabilities (Long-term Borrowings)} \)
• B. \( \text{Reserves and Surplus} \)
• C. \( \text{Current Liabilities (Other Current Liabilities)} \)
• D. \( \text{Share Capital} \)

Hint:

Be careful not to confuse Securities Premium with Premium on Redemption. Securities Premium is a capital gain held under *Reserves and Surplus*, while Premium on Redemption represents a future payment obligation classified under *Non-Current Liabilities*.

Answer 1

The Correct Option is A

Concept: A redemption premium represents a contractually agreed future expenditure that a company must pay when it redeems its debentures. Because it represents a long-term obligation, it is classified as a non-current liability.

Step 1: Analyze the lifetime of the redemption obligation.
The premium on redemption is a known future liability that stays active throughout the entire lifetime of the debentures. It represents part of the total long-term cost of borrowing.

Step 2: Identify its location on the balance sheet.
In accordance with Schedule III disclosure requirements, this future payment obligation is presented under the primary heading of Non-Current Liabilities, grouped alongside the main debenture liability within Long-term Borrowings.