Accountancy Part AIssue and Redemption of Debentures

Calculate the amount of yearly interest payable on 9% debentures (10,…

Calculate the amount of yearly interest payable on 9% debentures (10,000 debentures of ₹100) issued as collateral security.

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → No interest payable

Debentures issued as collateral security are only a secondary security given to a lender along with a loan. No liability arises from them unless the company fails to repay the loan, so no entry is passed on their issue and no interest is payable on them. Interest is paid only on the loan itself.

₹90,000 is what 9% on 10,000 debentures of ₹100 would be if they were an ordinary issue; that figure does not apply here.

NCERT (2026-27 edition):
Issue of Debentures as a Collateral Security – “No entry is made in the books of accounts since no liability is created by such issue. However, on the liability side of the balance sheet, below the item of loan, a note to the effect that it has been secured by issue of debentures as a collateral security is appended.”