A company has an outstanding balance of Debentures of ₹10,00,000. It issued Debentures of ₹2,50,000 as collateral security for a loan of ₹2,00,000. How much amount will be shown in Balance Sheet against Debentures under long term Borrowing?

₹10,00,000

The correct answer is Option (3) - ₹10,00,000.

Debentures are issued as collateral security so there is no change in amount of debentures so debentures are shown at the old amount of ₹1000000.

There are two treatments of issuing debentures as collateral security in the accounting books:

1. First Method

Company does not make any journal entry in the account books at the time of issue of these debentures. A note is attached below the loan on the liabilities side of the balance sheet. It will state the fact that they have been secured by the issue of debentures.

2. Second Method

Sometimes the issue of debentures as collateral security is shown by making the following journal entry: 
  Debenture Suspense A/c Dr. 
           To Debentures A/c

*There is no change in debentures amount due to issue of debentures as collateral security. Only loan amount is shown in the balance sheet.