Based on following, answer question.
XYZ Ltd. has been operating in the field of FMCG products in South Indian market. However to expand its operation in northen part of India, it needs additional capital ₹20,00,000 which is raised by issuing 10% Debenture of ₹12,00,000 of ₹100 issued at a discount of 10% to be repayable after 6 years. The rest of the funds is raised by issuing 5% debenture of ₹8,00,000 of ₹100 issued at 15% premium. These debentures are perpetual in nature. After six years of successful operation in northern India, company took a loan of ₹5,00,000 from PNB against 5% debenture of ₹8,00,000 of ₹100 each as a collateral security. The company successfully ran its operation and managed to pay off its loan within two years.
The company raised a loan of ₹5,00,000 from PNB against 5% debenture of ₹8,00,000 of ₹100 each as a collateral security. The "Debenture suspense A/c" will be debited with:-
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → ₹8,00,000
When debentures are issued as collateral security, the company receives no money for them; they only back the loan. If the issue is recorded in the books, Debenture Suspense Account is debited and Debentures Account is credited with the nominal value of the debentures, not with the amount of the loan.
Nominal value of 5% debentures issued as collateral = ₹8,00,000
Debenture Suspense A/c Dr. ₹8,00,000
To 5% Debentures A/c ₹8,00,000
The loan of ₹5,00,000 is shown separately under long-term borrowings, and the Debenture Suspense Account is shown as a deduction from the debentures.
NCERT (2026-27 edition):
NCERT (2026-27 edition):
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