What will be the journal entry for the issue of debentures, when 5,000 debentures of ₹100 each are issued as collateral Security against a loan of ₹4,50,000 with an interest rate of 10%?
Answer & explanation
Correct answer: option 1
The correct answer is option 1-
10% Debentures Suspense A/c Dr. ₹5,00,000
To Debenture A/c ₹5,00,000
(Issue of debentures as collateral security)
That amount is written in the journal entry for which the debentures are issued not the loan amount. In most cases, loan amount is less than the debentures issued amount as security is more than loan.
Total debentures issued amount = 5,000 X 100
= ₹5,00,000
So, journal entry will be:
10% Debentures Suspense A/c Dr. ₹5,00,000
To Debenture A/c ₹5,00,000
(Issue of debentures as collateral security)