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Questions
Give the meaning of 'Debentures issued as Collateral Security'.
What is meant by issue of debentures as collateral security?
Solution 1
Loans taken are majorly secured by mortgage of the assets known as a prime or principal security. Security given in addition to the prime or principal security is termed as Collateral Security. If the borrower is not able to pay the principal amount or interest on loan amount, then the lender has the right to recover the dues from the sale of primary security and in case if the primary security is not sufficient to recover the amount of debt, then the collateral security can be used to recover the due amount.
Solution 2
The issue of debentures as an additional security against the loan in addition to the principal security is known as issue of debentures as collateral security
Solution 3
An issue of debentures as a collateral security implies that debentures are issued for procuring or obtaining a loan. Here, debentures act as a security in case of the company fails to meet the debt obligations (Principal Amount + Interest Amount) on time.
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Give the meaning of ‘Issue of Debentures as a collateral security.
Short Answer Question
Can the company purchase its own debentures?
Best Barcode Ltd. took a loan of ₹ 5,00,000 from a bank giving ₹ 6,00,000; 9% Debentures as collateral security. Pass journal entries regarding issue of debentures , if any, and show this loan in the Balance Sheet of the company.
A company took a loan of ₹ 4,00,000 from Bandhan Bank Ltd. and issued 8% Debentures of ₹ 4,00,000 as a collateral security.
X Ltd. took a loan of ₹ 3,00,000 from IDBI Bank . The company issued 4,000; 9% Debentures of ₹ 100 each as a collateral security for the same . Show how these items will be presented in the Balance Sheet of the company.
S. Singh Limited obtained a loan of ₹ 5,00,000 from State Bank of India @ 10% p.a. interest. The company issued ₹ 7,50,000, 10% Debentures of ₹ 100 each in favour of State Bank of India as Collateral Security. Pass necessary Journal entries for the above transactions:
(i) When company decided not to record the issue of 10% Debentures as Collateral Security.
(ii) When company decided to record the issue of 10% Debentures as Collateral Security.
