X Ltd. obtained loan from IDBI of Rs. 10,00,000, giving as collateral security of Rs. 15,00,000, 14% Debenture on 1st April, 2011. Which of the following accounting treatments is correct to issue debenture as collateral security?

No accounting entry is required

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Debenture Suspense A/ c Dr. 15,00,000
To 14% Debenture A/c 15,00,000

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Either (A) or (B)

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None of the above

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Solution

The correct option is D Either (A) or (B)
Collateral is a property or other asset that a borrower offers as a way for a lender to secure the loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. For calculating debenture on this there are two methods, first is that there is no entry in the book of accounts and second is recording of Debenture suspense account to Debenture acccount.

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