Read the following passage and answer the following question.

ABC Ltd. took over Assets of ₹6,00,000 and Liabilities of ₹40,000 of XYZ Ltd. at an agreed value of ₹6,30,000. ABC Ltd. issued 10% Debentures of ₹100 each at a discount of 10% to XYZ Ltd. in full satisfaction of the purchase price. ABC Ltd. writes off any capital losses incurred during a year, at the end of that financial year.

How much interest will be paid by ABC Ltd. to XYZ Ltd for one year?

₹70,000

The correct answer is option 1- ₹70,000.

When a company issues debentures, it is under an obligation to pay interest thereon at fixed percentage (half yearly) periodically until debentures are repaid. This percentage is usually as part of the name of debentures like 8% debentures, 10% debentures, etc., and interest payable is calculated at the nominal value of debentures.

Here, Nominal value of debenture = ₹100
Discount is 10% i.e. 100 X 10/100= ₹10
Issue price = 100-10
                  = ₹90

No of debenture issued = Purchase consideration/ issue price
                                    = 6,30,000/90
                                   = 7000

Interest = 7,00,000 X 10/100
              = 70,000