Multiple choice

A club made an investment of Rs. 1,10,000 in 8% debentures from an open market of face value Rs. 1,00,000 on 1st July, 2015. Interest is due on 30th June and 31st December. Interest due on 31st December is duly received on time. Which of the following statements is correct if the accounts are maintained on mercantile basis?

  1. Interest income of Rs. 6600 and an accrued interest of Rs. 2200 will be credited to the income and expenditure account on the assets side of the balance sheet.

  2. Interest income of Rs. 6000 and accrued interest of Rs. 2000 will be credited to the income and expenditure account on the assets side of the balance sheet.

  3. Interest income of Rs. 4400 and accrued interest of Rs. 2200 will be credited to the income and expenditure account on the assets side of the balance sheet.

  4. Interest income of Rs. 4000 and accrued interest of Rs. 2000 will be credited to the income and expenditure account on the assets side of the balance sheet.

  5. Interest income of Rs. 8000 and accrued interest of Rs. 2000 will be credited to the income and expenditure account on the assets side of the balance sheet.
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B Correct answer
Explanation

Interest has to be calculated on face value of Rs. 1,00,000, which amounts to 1,00,000 * 8% * 9/12, i.e. Rs. 6000. An amount of Rs. 4000 will be received on 31st December and the rest, i.e. Rs. 2000 is accrued.

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