Based on following information answer question:
Apex Ltd. issued to public ₹10,00,000, 10% Debentures of ₹100 each at par, redeemable at a premium of 20%. It also issued 10,000, 11% Debentures ₹100 each as collateral security of against bank loan of ₹8,00,000.
The company bought building worth ₹50,00,000 from Beta Ltd. against a cheque of ₹20,00,000 and balance by issue of 12% Debentures of ₹100 each at a premium of 20%.
By what amount debentures interest account be debited, if debenture interest is payable annually?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) - ₹4,00,000.
1) Issued to public ₹10,00,000, 10% Debentures.
Interest = 10,00,000 x 10/100
= ₹1,00,000
2) Issued 10,000, 11% Debentures ₹100 each as collateral security of against bank loan of ₹8,00,000.
No interest is provided on debentures which are issued as a collateral security.
3) Building purchased and ₹30,00,000 paid by issue of 12% Debentures of ₹100 each at a premium of 20%.
No of debentures issued = 30,00,000/120
= 25,000
Debentures amount = 25,000 x 100
= 25,00,000
Interest = 25,00,000 x 12/100
= ₹3,00,000
Total interest = 1,00,000 + 3,00,000
= ₹4,00,000
So, total interest on debentures is ₹4,00,000. Interest is debited with ₹4,00,000. The journal entry for this-
Debenture Interest A/c Dr. ₹4,00,000
To Debentureholders A/c ₹4,00,000