To calculate the finance cost for the year, we need to consider the interest payable on the loan taken by the company. The collateral security in the form of debentures does not affect the finance cost directly; it only serves as security for the lender.
Given:
• Loan amount = ₹10,00,000
• Interest rate on loan = 12% p.a.
• Collateral security = ₹15,00,000 in 8% Debentures (not used for interest calculation)
Step 1: Finance Cost Calculation
Finance cost = Loan amount × Interest rate
Finance cost = ₹10,00,000 × 12%
Finance cost = ₹10,00,000 × 0.12
Finance cost = ₹1,20,000
Step 2: Conclusion
The finance cost for the year is ₹1,20,000.
Note: The ₹15,00,000 collateral debentures are only a security measure and do not impact the calculation of interest expense on the loan.