On 1st April, 2024, Dina Ltd. issued 8,000, 9% debentures of Rs. 100 each at a discount of 6%. The total amount of interest due on debentures for the year ended 31st March, 2025 will be :
On 1st April, 2024, Dina Ltd. issued 8,000, 9% debentures of Rs. 100 each at a discount of 6%. The total amount of interest due on debentures for the year ended 31st March, 2025 will be :
Options
Official answer
Correct option: (B) Rs. 72,000
Interest on debentures is always calculated on the face (nominal) value, not the issue price. Face value of debentures = . Interest @ 9% p.a. for one full year = = Rs. 72,000.
Marking scheme
- 1.1 mark for correctly identifying that interest is calculated on face value (Rs. 8,00,000) and not on the discounted issue price, arriving at Rs. 72,000 (option B).
Hint
Debenture interest is always computed on face value — the issue price (at discount or premium) never affects it.
Quick oral answer
Interest on debentures is always calculated on the face value of the debentures at the stated coupon rate, irrespective of the price at which they were actually issued.
Common mistakes
- 1.Calculating interest on the net amount received (after discount) instead of on the face value of the debentures.
- 2.Confusing the discount percentage (6%) with the interest rate (9%) while computing the interest figure.
- 3.Forgetting that interest accrues for the full accounting year when debentures are issued on 1st April.
Analysis and explanation
Concept
Debenture interest is a contractual fixed obligation payable on the nominal (face) value of the debentures, regardless of whether the debentures were issued at par, premium or discount.
Working
- Number of debentures = 8,000; Face value each = Rs. 100 → Total face value = Rs. 8,00,000
- Rate of interest = 9% p.a.; Period = full year (1st April 2024 to 31st March 2025)
- Interest = = Rs. 72,000
The 6% issue discount only affects the amount actually received by the company (Rs. 7,52,000) and is written off as a loss on issue of debentures; it never changes the interest liability.
Why other options are wrong
- (A) Rs. 48,000 wrongly uses only 6% (the discount rate) instead of the 9% interest rate.
- (C) Rs. 1,20,000 does not correspond to any correct combination of the given figures.
- (D) Rs. 80,000 incorrectly applies interest on an issue-price-adjusted figure rather than the face value.
Interesting facts
Debenture interest is a tax-deductible expense for the issuing company under the Income Tax Act, unlike dividends on shares, which is one reason companies often prefer debt financing.
Under Section 71 of the Companies Act, 2013, a company cannot issue debentures carrying voting rights, which is why debenture holders are only entitled to fixed interest, not profit-linked returns.
Question details
Q11 of 39 questions
- Board
- CBSE
- Class
- Class 12
- Subject
- Accountancy
- Year
- 2026
- Section
- Section A
- Marks
- 1
- Type
- MCQ
- Chapter
- Issue and Redemption of Debentures
- Topic
- Interest on Debentures
- Bloom's level
- apply
- Syllabus topic
- Unit 1: Accounting for Companies — Issue and Redemption of Debentures — Interest on Debentures
- Author
- CBSE
- Reviewed by
- Padhantu Academic Team
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Frequently asked questions
Is debenture interest calculated on face value or issue price?
Always on the face (nominal) value of the debentures, regardless of whether they were issued at par, premium, or discount.
Does discount on issue of debentures affect the interest expense?
No. The discount is written off separately as a loss on issue of debentures (through Securities Premium or Statement of Profit and Loss); it does not change the annual interest liability.