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 only an extra security for the bank loan; no money is borrowed on them. So no interest is paid on these debentures. Interest is paid only on the bank loan.
Interest on bank loan = 12% of Rs. 6,00,000 = Rs. 72,000
Interest on collateral debentures = nil
Rs. 1,22,000 adds 10% on the debentures (Rs. 50,000) to the loan interest, which would charge interest twice on one borrowing.
NCERT (2026-27 edition): |