If vendors are issued fully paid debentures of ₹1,00,000 in consideration of net assets of ₹1,20,000, then, the balance of ₹20,000 will be credited to:

Capital Reserve

The correct answer is option 2- Capital Reserve.

In case of the whole business being taken over if the value of debentures is less than the value of the net assets taken over the difference will be credited to capital Reserve account.

Capital Reserve = Net Assets - Purchase consideration
                          = 1,20,000 - 1,00,000
                         = 20,000

The journal entry will be:
Assets A/c Dr.       ₹1,20,000
       To Vendor                       ₹1,00,000
       To Capital Reserve A/c    ₹20,000