Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Issue and Redemption of Debentures

Question:

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:-

Options:

₹5,00,000

₹3,00,000

₹8,00,000

₹13,00,000

Correct Answer:

₹8,00,000

Explanation:

When debentures as collateral security is shown by making the following journal entry:
Debenture Suspense A/c Dr. 800000
           To Debentures A/c         800000

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