Q.Brinda Ltd. has furnished the following information:
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Start your 14-day free trial to unlock the full solution →The 25,000 debentures of ₹100 each (total ₹25,00,000) and the bank loan of ₹10,00,000 are shown under Non-Current Liabilities as Long-term Borrowings (total ₹35,00,000), while the unpaid interest of ₹2,50,000 is shown under Current Liabilities (Other Current Liabilities).
Let us first understand the nature of each item and where it belongs in the Balance Sheet. A company's Balance Sheet is divided into two main sides: Equity & Liabilities and Assets. Under the Companies Act, 2013, liabilities are classified as Shareholders' Funds, Share Application Money Pending Allotment, Non-Current Liabilities, and Current Liabilities.
Debentures are long-term borrowings of the company. Since these are 10% debentures of ₹100 each, the total face value is 25,000 × ₹100 = ₹25,00,000. They are repayable after a fixed period (usually more than 12 months from the balance sheet date), so they appear under Non-Current Liabilities as "Long-term Borrowings."
The interest on debentures is a charge against profit, not an appropriation. It is an expense that has accrued but remains unpaid. Since it is due and payable within 12 months, it becomes a Current Liability — specifically under "Other Current Liabilities" or "Short-term Provisions" depending on the exact classification. Here, it is shown as "Interest accrued but not due on debentures" under Current Liabilities.
The bank loan of ₹10,00,000 is repayable after 5 years, which is clearly more than 12 months from the balance sheet date. Hence, it is also a Non-Current Liability under "Long-term Borrowings."
Now, let us present the relevant extract of the Balance Sheet of Brinda Ltd. as at March 31, 2017.
Balance Sheet of Brinda Ltd. as at March 31, 2017 (Extract — Liabilities side only)
| Particulars | Note No. | Amount (₹) |
|---|---|---|
| EQUITY AND LIABILITIES | ||
| 1. Shareholders' Funds | (Not given) | |
| 2. Non-Current Liabilities | ||
| (a) Long-term Borrowings | 1 | 35,00,000 |
| 3. Current Liabilities | ||
| (a) Other Current Liabilities | 2 | 2,50,000 |
| TOTAL | 37,50,000 |
Notes to Accounts
| Note No. | Particulars | Amount (₹) |
|---|---|---|
| 1 | Long-term Borrowings | |
| 10% Debentures (25,000 debentures of ₹100 each) | 25,00,000 | |
| Bank Loan (repayable after 5 years) | 10,00,000 | |
| Total | 35,00,000 | |
| 2 | Other Current Liabilities | |
| Interest accrued but not due on debentures (Working Note 1) | 2,50,000 | |
| Total | 2,50,000 |
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