Multiple choice

Tista Ltd. has issued 14% debentures of Rs. 10,00,000 at a discount of 10% on April 01, 2004 and the company pays interest half-yearly on June 30, and December 31 every year. On March 31, 2006, the amount shown as “interest accrued but not paid” in the balance sheet will be

  1. Rs. 35,000 shown along with debentures.

  2. Rs. 70,000 under current liabilities.

  3. Rs. 1,40,000 shown along with debentures.

  4. Rs. 10,000 under current liabilities.
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A Correct answer
Explanation

Interest on debentures = Rs. 10,00,000 × 14% = Rs. 1,40,000 annually. Interest is paid half-yearly, so each payment is Rs. 70,000. Last payment was on December 31, 2005. From January 1, 2006 to March 31, 2006 = 3 months. Accrued interest = Rs. 70,000 × 3/6 = Rs. 35,000. This is shown alongside debentures as accrued interest.

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