XYZ Ltd. has been operating in the field of FMCG products in South Indian market. However to expand its operation in northern part of India, it needs additional capital Rs 20,00,000 which is raised by issuing 10% Debenture of Rs 12,00,000 at a discount of 10% to be repayable after 6 years. The rest of the funds is raised by issuing 5% debenture of Rs 8,00,000 at 15% premium. These debentures are perpetual in nature. After six years of successful operation in northern India, company took a loan of Rs 5,00,000 from PNB against 5% debenture of Rs 8,00,000 of Rs 100 each as a collateral security. The company successfully ran its operation and managed to pay off its loan within two years.
Company raised a loan of Rs 5,00,000 from PNB against 5% debenture of Rs 8,00,000 of Rs 100 each as a collateral security. The "Debenture suspense A/c" will be debited with :
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Collateral = security from which the debt can be paid if all terms are not completed with. It should be from what and what is debited.
Understanding Debenture Suspense Account
A Debenture Suspense A/c is used when debentures are issued as collateral security. In this case, the company raised a loan of Rs 5,00,000 from PNB, and the 5% debentures of Rs 8,00,000 are issued as collateral security.
Therefore, the Debenture Suspense A/c will be debited with the loan amount of Rs 5,00,000.
