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State the Meaning of ‘Debentures Issued as a Collateral Security - Accountancy

Short Note

Short Answer Question

State the meaning of ‘Debentures issued as a Collateral Security.

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Solution

The term collateral security means additional or secondary security in addition to the primary security. Sometimes, when a company takes loan from a financial institution, then besides the primary security, the company may issue debenture for additional security (as collateral security). The lender who receives debenture as collateral security is not entitled for interest on these debentures. If any default is made by the company in paying back the principal amount (i.e. the loan amount) or interest on the loan, then the lender has the full right to recover his/her dues from the sale of primary security. But, if the primary security is not sufficient to recover the amount of the debt, then the debentures issued as collateral may be used for recovery of the remaining amount.

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APPEARS IN

NCERT Class 12 Accountancy - Company Accounts and Analysis of Financial Statements
Chapter 2 Issue and Redemption of Debentures
Short Answer Question | Q 3 | Page 134
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