A company has issued 10% Debentures of Face Value of Rs. 5,00,000 as Collateral Security against Rs. 6,00,000, 12% Bank Loan. What amount of total interest will be paid by company for the whole year:-
Answer & explanation
Correct answer: option 3
The correct answer is Option 3- Rs. 72,000.
- Debentures issued as collateral security are not meant for raising funds directly, so no interest is paid on them.
- Interest is payable only on the actual loan taken from the bank.
Loan amount from bank = 6,00,000
Interest rate on bank loan = 12%
Interest = 6,00,000 x 12/100
= 72,000
So, total interest paid by the company is 72,000.