A private limited company has given a corporate guarantee to a bank, for the prompt repayment of loan taken by another private limited company. The borrower company failed to repay the loan and hence the guarantor company inorder to save its assets and business raised mortgage loan from a bank to repay the debt. In such circumstances the following points need to be analysed:
1. whether the entire borrowed money paid towards the repayment of guarantee's debt can be written of as expenditure in the year of payment as the entire money is paid to safeguard the assets of the guarantor company and the incomne generating source.
2.whether the interest on borrowed loan of guanrantor company can be written of as expenditure
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