Question : Which of the following statements is not true?
Option 1: Interest on debentures is a charge against a profit of the company and is payable whether the company earns a profit or incurs a loss.
Option 2: Interest on debentures is calculated at a fixed rate of interest on the nominal (face) value.
Option 3: Interest is payable on debentures issued as collateral security.
Option 4: Balance in Debentures' Interest Account is transferred to Statement of Profit and Loss (Finance Cost) at the end of the year.
Correct Answer: Interest is payable on debentures issued as collateral security.
Solution : Answer = Interest is payable on debentures issued as collateral security.
The security given in addition to the primary or principal security is termed or known as Collateral Security. Collateral security is realised by the lender only if the due amount (loan plus interest) cannot be recovered by realising the primary or principal security. Interest is not payable on debentures issued as collateral security.
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