Read the following case study and answer question.
Rancho Ltd. was running successfully since last 8 years. Post covid there were some financial problems faced by firm, like many industries were facing. Due to their past reputation they could manage the permission from SEBI for issuing of shares on 1 Aug, 2022. They also decided to issue 12% Debentures of ₹100 each at 10% Discount and were to be redeemed at 25% premium in such a way that they could arrange fund of ₹45,00,000. At the time of issue of Debenture they also issued equity Share of ₹30,00,000 at 20% premium.
Interest payable on the Debentures issued for the year ended Mar, 31st 2023 will be :
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → ₹4,00,000
Interest on debentures is always calculated on the face (nominal) value, not on the issue price, and only for the period the debentures were outstanding in the year.
Issue price = ₹100 − 10% discount = ₹90
Number of debentures = ₹45,00,000 ÷ ₹90 = 50,000
Face value = 50,000 × ₹100 = ₹50,00,000
Period from 1 August 2022 to 31 March 2023 = 8 months
Interest = ₹50,00,000 × 12/100 × 8/12 = ₹4,00,000
₹6,00,000 would be interest for a full year, and ₹5,40,000 is a full year on the amount raised (₹45,00,000) instead of the face value.