Question

On 1st April, 2024 Vinar Ltd. issued Rs 5,00,000, 9% debentures of Rs 100 each at 10% discount. Interest is payable half yearly on 30th September and 31st March every year. The amount of interest written off on 31st March, 2025 was:

• A. Rs 50,000
• B. Rs 25,000
• C. Rs 22,500
• D. Rs 45,000

Hint:

Interest for the year = 9% of Rs. 5,00,000 = Rs. 45,000, two payments of Rs. 22,500 each. All of it is written off to profit and loss.

Answer 1

The Correct Option is D

Step 1: Find the yearly interest:
Face value of debentures = Rs. 5,00,000. Rate = 9%.
Interest for the year = 5,00,000 x 9/100 = Rs. 45,000. The 10% discount does not change it.

Step 2: Split by half years:
Interest is paid half yearly. Each half-year = 45,000 / 2 = Rs. 22,500.
It falls due on 30 September 2024 and again on 31 March 2025.

Step 3: Write off:
At the year end, the Debenture Interest Account shows Rs. 22,500 + Rs. 22,500 = Rs. 45,000.
This whole amount is transferred to the Statement of Profit and Loss as a finance cost. So the interest written off is Rs. 45,000.

Step 4: Why the other options are wrong:
(A) Rs. 50,000 is the discount (10% of 5,00,000). Discount is not interest.
(B) Rs. 25,000 is half of that discount figure and has no link with interest.
(C) Rs. 22,500 is only one half-year instalment. Two instalments fall in the year.

Final Answer:
The interest written off on 31 March 2025 is Rs. 45,000, option (D).