Based on following case, answer question.
A Ltd issued 2,000, 10% debenture of ₹100 each on April 1, 2019 at a discount of 10% redeemable at a premium of 10% after five years. Company purchased assets of the book value of ₹2,20,000 from B Ltd. at book value and agreed to make payment of purchase consideration by issuing another 2000, 10% Debentures of ₹100 each at a premium of 10% on above mentioned date only.
Debenture issued will be shown in the Balance Sheet as at Mar. 31, 2020 under:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Long Term Borrowings
Debentures are borrowed capital. These are redeemable after five years, so on 31st March 2020 they are a non-current liability and are shown under Non-current Liabilities – Long-term Borrowings, with the details in the Notes to Accounts.
Option (1) Other Long Term Liabilities — Incorrect. That sub-head is for items such as premium on redemption, not the debentures themselves.
Option (2) Long Term Borrowings — Correct. Debentures are long-term borrowed funds.
Option (3) Reserves and Surplus — Incorrect. Reserves are part of shareholders’ funds, not borrowings.
Option (4) Short Term Borrowings — Incorrect. The debentures are not repayable within twelve months.
Note: In the book’s solution below, the head ‘2. Non-current Liabilities’ is missing (a misprint): Long term borrowings are printed under 1. Shareholders’ Funds, but they belong under Non-current Liabilities.
NCERT (2026-27 edition):
NCERT (2026-27 edition):
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