Debentures are issued at a discount. In which of the following the difference between their nominal value and the issue price is treated as the amount of interest.

Zero Coupon Rate Debentures are issued at a discount to their face value and do not carry any periodic interest payment. The entire return to the investor comes from the difference between the issue price and the redemption value.

This difference between the nominal (face) value and issue price represents the interest component, which is systematically written off over the life of the debentures.

How it works:

If a company issues Zero Coupon Debentures of ₹1,00,000 at ₹80,000 (20% discount), the discount of ₹20,000 is the interest that investors will earn. This ₹20,000 is not paid periodically but is realized at maturity when debentures are redeemed at face value.

The discount of ₹20,000 is treated as Discount on Issue of Debentures (a capital loss) and is written off as interest expense over the tenure of the debentures.

Why other options are incorrect:

• Convertible Debentures can be converted into shares; discount treatment depends on the terms, not necessarily treated as interest
• Perpetual Debentures have no maturity date and pay regular interest; discount is a separate component
• Specific Coupon Rate Debentures pay regular interest at specified rates; any discount is treated as capital loss, not the primary interest component