Accountancy Part AIssue and Redemption of Debentures

On 1st July 22, Centaur Ltd issued ₹25,00,000, 8% debentures of ₹100…

On 1st July 22, Centaur Ltd issued ₹25,00,000, 8% debentures of ₹100 each as collateral security to first level bank against loan dues of ₹20,00,000. How much amount will be shown in the balance sheet?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → ₹20,00,000

Debentures issued as collateral security create no liability of their own: if the loan is repaid, they are returned. Only the bank loan of ₹20,00,000 is shown in the balance sheet, with a note saying it is secured by the debentures. (If the issue is recorded through a Debenture Suspense Account, the suspense balance is deducted from the debentures, and the net figure is again the loan.)

₹25,00,000 is the face value of the debentures, which is not a debt of the company; ₹45,00,000 adds the two and counts the same borrowing twice.

NCERT (2026-27 edition):
Issue of Debentures as a Collateral Security – “No entry is made in the books of accounts since no liability is created by such issue. However, on the liability side of the balance sheet, below the item of loan, a note to the effect that it has been secured by issue of debentures as a collateral security is appended.”