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All questions of Issue and Redemption of Debentures for Commerce Exam
Shareholders get dividend, Debenture holders get:- a)Profit
- b)Interest
- c)Bonus
- d)Shares
Correct answer is option 'A'. Can you explain this answer?
Shareholders get dividend, Debenture holders get:
a)
Profit
b)
Interest
c)
Bonus
d)
Shares
|
Arjun Singhania answered |
Only when a company makes a profit, a dividend is distributed. However, preferred dividend is given when profit is made; paying a dividend to equity shareholders remains optional. Interest is paid to the lenders/creditors/debenture holders. A dividend is paid to the preferred shareholders and equity shareholders.
Discount on issue of debentures is a ____________.- a)Revenue loss to be charged in the year of issue
- b)Capital loss to be written off from capital reserve
- c)Capital loss to be written off over the tenure of the debentures
- d)Capital loss to be shown as goodwill
Correct answer is option 'C'. Can you explain this answer?
Discount on issue of debentures is a ____________.
a)
Revenue loss to be charged in the year of issue
b)
Capital loss to be written off from capital reserve
c)
Capital loss to be written off over the tenure of the debentures
d)
Capital loss to be shown as goodwill
|
Deepika Desai answered |
Explanation:
Discount on issue of debentures refers to the issue of debentures at a price lower than their face value. This discount is a capital loss to be written off over the tenure of the debentures. The following points explain this concept in detail:
Capital Loss: The discount on issue of debentures represents a capital loss to the company. It reduces the amount of capital that the company can raise from the issue of debentures.
Writing off the Loss: The capital loss on account of discount on issue of debentures is written off over the tenure of the debentures. This means that a portion of the loss is charged to the Profit and Loss Account each year until the debentures are redeemed.
Amortization: The process of writing off the capital loss over the tenure of the debentures is called amortization. It involves the calculation of the annual amount of loss to be charged to the Profit and Loss Account.
Accounting Treatment: The discount on issue of debentures is shown as a liability in the Balance Sheet. The amount of discount is deducted from the face value of the debentures to arrive at the amount of debentures issued. The capital loss on account of the discount is shown as a separate item in the Balance Sheet.
Conclusion:
Discount on issue of debentures is a capital loss that is written off over the tenure of the debentures. The process of writing off this loss is called amortization. The discount is shown as a liability in the Balance Sheet and the capital loss is shown as a separate item in the Balance Sheet.
Discount on issue of debentures refers to the issue of debentures at a price lower than their face value. This discount is a capital loss to be written off over the tenure of the debentures. The following points explain this concept in detail:
Capital Loss: The discount on issue of debentures represents a capital loss to the company. It reduces the amount of capital that the company can raise from the issue of debentures.
Writing off the Loss: The capital loss on account of discount on issue of debentures is written off over the tenure of the debentures. This means that a portion of the loss is charged to the Profit and Loss Account each year until the debentures are redeemed.
Amortization: The process of writing off the capital loss over the tenure of the debentures is called amortization. It involves the calculation of the annual amount of loss to be charged to the Profit and Loss Account.
Accounting Treatment: The discount on issue of debentures is shown as a liability in the Balance Sheet. The amount of discount is deducted from the face value of the debentures to arrive at the amount of debentures issued. The capital loss on account of the discount is shown as a separate item in the Balance Sheet.
Conclusion:
Discount on issue of debentures is a capital loss that is written off over the tenure of the debentures. The process of writing off this loss is called amortization. The discount is shown as a liability in the Balance Sheet and the capital loss is shown as a separate item in the Balance Sheet.
Payment of debentures is made before the ________- a)Payment of Profit
- b)Payment of Share Capital
- c)Payment of Dividend
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
Payment of debentures is made before the ________
a)
Payment of Profit
b)
Payment of Share Capital
c)
Payment of Dividend
d)
None of these
|
Jayant Mishra answered |
Debenture is an alternative form of investment in a company that is more secured than investment in shares because company must pay interest and it will be paid before the dividend payment. Debenture holders also get privilege, if the company which issued the debentures becomes bankrupt.
Debenture Allotment Account is:- a)Personal Account
- b)Nominal Account
- c)Real Account
- d)None of these
Correct answer is option 'A'. Can you explain this answer?
Debenture Allotment Account is:
a)
Personal Account
b)
Nominal Account
c)
Real Account
d)
None of these
|
Shubham Nambiar answered |
Debenture Allotment Account is a personal account. It is Representative Personal Account.
A company can issue its debentures at _________- a)Par only
- b)Premium and Discount only
- c)Par, Premium and Discount
- d)Par and Premium only
Correct answer is option 'C'. Can you explain this answer?
A company can issue its debentures at _________
a)
Par only
b)
Premium and Discount only
c)
Par, Premium and Discount
d)
Par and Premium only
|
Prachi Gupta answered |
Yes company can issues it's debentures at par premium and discount but it can't be forfeited like share.
Premium on Redemption of Debentures Account is:- a)Personal Account
- b)Nominal Account
- c)Real Account
- d)None of these
Correct answer is option 'A'. Can you explain this answer?
Premium on Redemption of Debentures Account is:
a)
Personal Account
b)
Nominal Account
c)
Real Account
d)
None of these
|
Priya Patel answered |
Premium on Redemption of Debentures is personal account and it is a liability of the company which is payable on redemption.
How would you show Debentures in the Balance sheet i.e. under which heading?- a)Non-current Liabilities
- b)Current Liabilities
- c)Share Capital
- d)Reserve and Surplus
Correct answer is option 'A'. Can you explain this answer?
How would you show Debentures in the Balance sheet i.e. under which heading?
a)
Non-current Liabilities
b)
Current Liabilities
c)
Share Capital
d)
Reserve and Surplus
|
Arindam Unni answered |
Debentures issued are shown under the heading of Non-current liabilities and sub-heading Long Term Borrowings.
Can you explain the answer of this question below:This a MCQ (Multiple Choice Question) based practice test of Chapter 7 - Company Accounts Issue of Debentures of Accountancy of Class XII (12) for the quick revision/preparation of School Board examinations
Q Debenture Application Account is:
- A:
Interest
- B:
Nominal Account
- C:
Real Account
- D:
None of these
The answer is C.
This a MCQ (Multiple Choice Question) based practice test of Chapter 7 - Company Accounts Issue of Debentures of Accountancy of Class XII (12) for the quick revision/preparation of School Board examinations
Q Debenture Application Account is:
Interest
Nominal Account
Real Account
None of these
|
Atul Sharma answered |
Yes, because debenture is liability for company.
A debentures is issued under the ________ of company- a)Common seal
- b)Section 12 of Companies Act
- c)Rules & Principles
- d)Registration
Correct answer is option 'A'. Can you explain this answer?
A debentures is issued under the ________ of company
a)
Common seal
b)
Section 12 of Companies Act
c)
Rules & Principles
d)
Registration
|
Om Desai answered |
A debenture is a document issued by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge. A company issue its debentures under the Common Seal of the company.
Can you explain the answer of this question below:P Ltd. issued 15,000, 15% debentures of Rs. 100 each at a premium of 10% which are redeemable after 10 years at a premium of 20%. The amount of loss on redemption of debentures to be written off every year is:
- A:
Rs. 15,000
- B:
Rs. 30,000
- C:
Rs. 45,000
- D:
Rs. 22,500
The answer is a.
P Ltd. issued 15,000, 15% debentures of Rs. 100 each at a premium of 10% which are redeemable after 10 years at a premium of 20%. The amount of loss on redemption of debentures to be written off every year is:
Rs. 15,000
Rs. 30,000
Rs. 45,000
Rs. 22,500
|
|
Raghav Ghoshal answered |
Calculation of Loss on Redemption of Debentures
The amount of debentures issued = 15,000
Face value of each debenture = Rs. 100
Total face value of debentures = 15,000 x 100 = Rs. 15,00,000
Premium on each debenture = 10%
Total premium received = 15,000 x 100 x 10% = Rs. 1,50,000
Total amount received from the issue of debentures = Face Value + Premium = Rs. 15,00,000 + Rs. 1,50,000 = Rs. 16,50,000
Redemption of Debentures
Debentures are redeemable after 10 years at a premium of 20%. Therefore, the amount payable on redemption of each debenture = Face Value + Premium + Redemption Premium
Redemption premium = 20% of face value = 20% of Rs. 100 = Rs. 20
Amount payable on redemption of each debenture = Rs. 100 + Rs. 10 + Rs. 20 = Rs. 130
Total amount payable on redemption of all debentures = 15,000 x Rs. 130 = Rs. 19,50,000
Loss on Redemption
The amount received from the issue of debentures is Rs. 16,50,000 and the amount payable on redemption is Rs. 19,50,000. Hence, there is a loss of Rs. 3,00,000 on redemption of debentures.
The loss on redemption of debentures is to be written off over a period of 10 years as per the provisions of the Companies Act, 2013.
Therefore, the amount of loss on redemption of debentures to be written off every year = Total loss / Number of years
= Rs. 3,00,000 / 10
= Rs. 30,000
Hence, the correct option is (a) Rs. 15,000.
The amount of debentures issued = 15,000
Face value of each debenture = Rs. 100
Total face value of debentures = 15,000 x 100 = Rs. 15,00,000
Premium on each debenture = 10%
Total premium received = 15,000 x 100 x 10% = Rs. 1,50,000
Total amount received from the issue of debentures = Face Value + Premium = Rs. 15,00,000 + Rs. 1,50,000 = Rs. 16,50,000
Redemption of Debentures
Debentures are redeemable after 10 years at a premium of 20%. Therefore, the amount payable on redemption of each debenture = Face Value + Premium + Redemption Premium
Redemption premium = 20% of face value = 20% of Rs. 100 = Rs. 20
Amount payable on redemption of each debenture = Rs. 100 + Rs. 10 + Rs. 20 = Rs. 130
Total amount payable on redemption of all debentures = 15,000 x Rs. 130 = Rs. 19,50,000
Loss on Redemption
The amount received from the issue of debentures is Rs. 16,50,000 and the amount payable on redemption is Rs. 19,50,000. Hence, there is a loss of Rs. 3,00,000 on redemption of debentures.
The loss on redemption of debentures is to be written off over a period of 10 years as per the provisions of the Companies Act, 2013.
Therefore, the amount of loss on redemption of debentures to be written off every year = Total loss / Number of years
= Rs. 3,00,000 / 10
= Rs. 30,000
Hence, the correct option is (a) Rs. 15,000.
Debentures can be _________.I. Mortgage Debentures or Simple Debentures.II. Registered Debentures Or Bearer Debentures.III. Redeemable Debentures or Irredeemable Debentures.IV. Convertible Debentures or Non-convertible Debentures.- a)Both (I) and (II) above
- b)Both (I) and (III) above
- c)Both (II) and (III) above
- d)All of (I), (II), (III) and (IV) above.
Correct answer is option 'D'. Can you explain this answer?
Debentures can be _________.I. Mortgage Debentures or Simple Debentures.
II. Registered Debentures Or Bearer Debentures.
III. Redeemable Debentures or Irredeemable Debentures.
IV. Convertible Debentures or Non-convertible Debentures.
a)
Both (I) and (II) above
b)
Both (I) and (III) above
c)
Both (II) and (III) above
d)
All of (I), (II), (III) and (IV) above.
|
Bhaskar Sharma answered |
The correct answer is option 'D' - All of (I), (II), (III), and (IV) above. Let's understand each type of debenture in detail:
I. Mortgage Debentures or Simple Debentures:
- Mortgage Debentures: These are secured debentures that are backed by the mortgage of the company's assets. In case of default, the debenture holders have a claim on the specified assets.
- Simple Debentures: These are unsecured debentures that are not backed by any specific assets. They are issued based on the creditworthiness and reputation of the company.
II. Registered Debentures or Bearer Debentures:
- Registered Debentures: These are debentures that are registered in the name of the debenture holder. The company maintains a register of debenture holders and the ownership can be transferred by endorsing the debenture certificate.
- Bearer Debentures: These are debentures that are not registered in the name of any specific holder. The debenture certificate is payable to the bearer and can be transferred by mere delivery. These debentures are more easily tradable in the secondary market.
III. Redeemable Debentures or Irredeemable Debentures:
- Redeemable Debentures: These debentures have a specified maturity date on which the company is obligated to repay the principal amount to the debenture holders. The redemption can be made in installments or as a lump sum.
- Irredeemable Debentures: Also known as perpetual debentures, these debentures do not have a fixed maturity date. The company is not obligated to repay the principal amount to the debenture holders. However, the company may choose to redeem them at its discretion.
IV. Convertible Debentures or Non-convertible Debentures:
- Convertible Debentures: These debentures can be converted into equity shares of the company after a certain period of time. The conversion ratio is specified at the time of issuance. This gives the debenture holders the opportunity to participate in the company's growth.
- Non-convertible Debentures: These debentures cannot be converted into equity shares. They are to be repaid in cash on maturity.
In conclusion, debentures can be categorized into various types based on their features such as security, transferability, redemption, and convertibility. Therefore, the correct answer is option 'D' - All of (I), (II), (III), and (IV) above.
I. Mortgage Debentures or Simple Debentures:
- Mortgage Debentures: These are secured debentures that are backed by the mortgage of the company's assets. In case of default, the debenture holders have a claim on the specified assets.
- Simple Debentures: These are unsecured debentures that are not backed by any specific assets. They are issued based on the creditworthiness and reputation of the company.
II. Registered Debentures or Bearer Debentures:
- Registered Debentures: These are debentures that are registered in the name of the debenture holder. The company maintains a register of debenture holders and the ownership can be transferred by endorsing the debenture certificate.
- Bearer Debentures: These are debentures that are not registered in the name of any specific holder. The debenture certificate is payable to the bearer and can be transferred by mere delivery. These debentures are more easily tradable in the secondary market.
III. Redeemable Debentures or Irredeemable Debentures:
- Redeemable Debentures: These debentures have a specified maturity date on which the company is obligated to repay the principal amount to the debenture holders. The redemption can be made in installments or as a lump sum.
- Irredeemable Debentures: Also known as perpetual debentures, these debentures do not have a fixed maturity date. The company is not obligated to repay the principal amount to the debenture holders. However, the company may choose to redeem them at its discretion.
IV. Convertible Debentures or Non-convertible Debentures:
- Convertible Debentures: These debentures can be converted into equity shares of the company after a certain period of time. The conversion ratio is specified at the time of issuance. This gives the debenture holders the opportunity to participate in the company's growth.
- Non-convertible Debentures: These debentures cannot be converted into equity shares. They are to be repaid in cash on maturity.
In conclusion, debentures can be categorized into various types based on their features such as security, transferability, redemption, and convertibility. Therefore, the correct answer is option 'D' - All of (I), (II), (III), and (IV) above.
The underwriting commission in case of issue of debentures can’t exceed:
- a)3%
- b)2.5%
- c)4%
- d)5%
Correct answer is option 'B'. Can you explain this answer?
The underwriting commission in case of issue of debentures can’t exceed:
a)
3%
b)
2.5%
c)
4%
d)
5%
|
Srsps answered |
According to Companies Act, underwriting commission should not exceed 5 per cent of the nominal value of a share and 2½ per cent in the case of debentures.
F Ltd. purchased Machinery from G Company for a book value of Rs. 4,00,000. The consideration was paid by issue of 10% debentures of Rs. 100 each at a discount of 20%. The debenture account was credited with ________.- a)Rs. 4,00,000
- b)Rs. 5,00,000
- c)Rs. 3,20,000
- d)Rs. 4,80,000
Correct answer is option 'B'. Can you explain this answer?
F Ltd. purchased Machinery from G Company for a book value of Rs. 4,00,000. The consideration was paid by issue of 10% debentures of Rs. 100 each at a discount of 20%. The debenture account was credited with ________.
a)
Rs. 4,00,000
b)
Rs. 5,00,000
c)
Rs. 3,20,000
d)
Rs. 4,80,000
|
|
Deepika Nambiar answered |
Value of machinery = 4,00,000
Debenture cost =100 issued at 20% discount
=80
No. of Debenture = 4,00,000/80= 5,000
Jounral entry;
F Ltd. A/C Dr.4,00,000
Debenture issued at at discount Dr. 1,00,000
To 10% Debenture A/C =5,00,000
W Ltd. issued 20,000, 8% debentures of Rs. 10 each at par, which are redeemable after 5 years at a premium of 20%. The amount of loss on redemption of debentures to be written of every year will be:- a)Rs. 40,000
- b)Rs. 10,000
- c)Rs. 20,000
- d)Rs. 8,000
Correct answer is option 'D'. Can you explain this answer?
W Ltd. issued 20,000, 8% debentures of Rs. 10 each at par, which are redeemable after 5 years at a premium of 20%. The amount of loss on redemption of debentures to be written of every year will be:
a)
Rs. 40,000
b)
Rs. 10,000
c)
Rs. 20,000
d)
Rs. 8,000
|
|
Lakshmi Kumar answered |
Calculation of Redemption Amount
The face value of each debenture is Rs. 10.
The premium on redemption is 20%, therefore, the redemption value of each debenture will be Rs. 12 (Rs. 10 + 20% of Rs. 10).
The total redemption amount will be 20,000 × Rs. 12 = Rs. 2,40,000.
Calculation of Loss on Redemption
Since the debentures were issued at par, the company received only Rs. 10 per debenture at the time of issue. However, it will have to pay Rs. 12 per debenture at the time of redemption, resulting in a loss of Rs. 2 per debenture (Rs. 12 - Rs. 10).
The total loss on redemption will be 20,000 × Rs. 2 = Rs. 40,000.
Allocation of Loss on Redemption
The loss on redemption of debentures is a capital loss and cannot be charged against the profits of the year in which the debentures are redeemed. Therefore, the loss has to be spread over the years between the issue and redemption of the debentures.
The loss on redemption will be spread over the 5-year period between the issue and redemption of the debentures. Therefore, the amount of loss to be written off every year will be Rs. 40,000 ÷ 5 = Rs. 8,000.
Therefore, option 'D' is the correct answer, and the amount of loss on redemption of debentures to be written off every year will be Rs. 8,000.
The face value of each debenture is Rs. 10.
The premium on redemption is 20%, therefore, the redemption value of each debenture will be Rs. 12 (Rs. 10 + 20% of Rs. 10).
The total redemption amount will be 20,000 × Rs. 12 = Rs. 2,40,000.
Calculation of Loss on Redemption
Since the debentures were issued at par, the company received only Rs. 10 per debenture at the time of issue. However, it will have to pay Rs. 12 per debenture at the time of redemption, resulting in a loss of Rs. 2 per debenture (Rs. 12 - Rs. 10).
The total loss on redemption will be 20,000 × Rs. 2 = Rs. 40,000.
Allocation of Loss on Redemption
The loss on redemption of debentures is a capital loss and cannot be charged against the profits of the year in which the debentures are redeemed. Therefore, the loss has to be spread over the years between the issue and redemption of the debentures.
The loss on redemption will be spread over the 5-year period between the issue and redemption of the debentures. Therefore, the amount of loss to be written off every year will be Rs. 40,000 ÷ 5 = Rs. 8,000.
Therefore, option 'D' is the correct answer, and the amount of loss on redemption of debentures to be written off every year will be Rs. 8,000.
Premium on redemption of debentures account is _______.- a)A real account
- b)A nominal account - income
- c)A personal account
- d)A nominal account - expenditure
Correct answer is option 'C'. Can you explain this answer?
Premium on redemption of debentures account is _______.
a)
A real account
b)
A nominal account - income
c)
A personal account
d)
A nominal account - expenditure
|
Jothika Dinakaran answered |
According to the personal account debit the receiver, credit the giver. So, any liability will come under personal account.
In this premium on Red motion of debentures is an liability so, it is a personal account.
In this premium on Red motion of debentures is an liability so, it is a personal account.
Debenture holders do not have right for ____- a)Dividend
- b)Dividend and Interest both
- c)Interest
- d)To apply for Redemption of debentures on maturity
Correct answer is option 'A'. Can you explain this answer?
Debenture holders do not have right for ____
a)
Dividend
b)
Dividend and Interest both
c)
Interest
d)
To apply for Redemption of debentures on maturity
|
Shruti Ahuja answered |
Debenture holders do not have the right for dividend.
Explanation:
- Dividend refers to the portion of a company's profits that is distributed to its shareholders. It is a reward for the shareholders' investment in the company.
- Debentures are a type of long-term debt instrument issued by a company to raise funds. Debenture holders are creditors of the company and not shareholders, which means they do not have ownership rights in the company.
- Unlike shareholders, debenture holders do not have the right to participate in the profits of the company in the form of dividends.
- The company is obligated to pay interest to debenture holders at a predetermined rate and frequency, which is the return on their investment. However, the payment of dividends is solely for the benefit of the shareholders.
- Debenture holders, being creditors, have a higher priority in receiving their interest payments before the payment of dividends to shareholders. This is because debentures are considered a form of debt and need to be repaid before distributing profits to shareholders.
- The company's profits are first used to meet its operating expenses, interest payments to debenture holders, and taxes. After meeting these obligations, if there are any remaining profits, they are distributed to shareholders as dividends.
- Hence, debenture holders do not have the right for dividend as it is solely for the benefit of the shareholders who have invested in the company's equity.
- Instead, debenture holders receive their returns in the form of interest payments, which are fixed and predetermined.
In conclusion, debenture holders do not have the right for dividend as it is reserved for the shareholders who hold equity in the company. Debenture holders receive their returns in the form of fixed interest payments.
Explanation:
- Dividend refers to the portion of a company's profits that is distributed to its shareholders. It is a reward for the shareholders' investment in the company.
- Debentures are a type of long-term debt instrument issued by a company to raise funds. Debenture holders are creditors of the company and not shareholders, which means they do not have ownership rights in the company.
- Unlike shareholders, debenture holders do not have the right to participate in the profits of the company in the form of dividends.
- The company is obligated to pay interest to debenture holders at a predetermined rate and frequency, which is the return on their investment. However, the payment of dividends is solely for the benefit of the shareholders.
- Debenture holders, being creditors, have a higher priority in receiving their interest payments before the payment of dividends to shareholders. This is because debentures are considered a form of debt and need to be repaid before distributing profits to shareholders.
- The company's profits are first used to meet its operating expenses, interest payments to debenture holders, and taxes. After meeting these obligations, if there are any remaining profits, they are distributed to shareholders as dividends.
- Hence, debenture holders do not have the right for dividend as it is solely for the benefit of the shareholders who have invested in the company's equity.
- Instead, debenture holders receive their returns in the form of interest payments, which are fixed and predetermined.
In conclusion, debenture holders do not have the right for dividend as it is reserved for the shareholders who hold equity in the company. Debenture holders receive their returns in the form of fixed interest payments.
6000 debentures were discharged by issuing Equity Shares of Rs. 10 each at 20% Premium. Find the number of shares issued.
- a)5000
- b)60000
- c)50000
- d)6000
Correct answer is option 'A'. Can you explain this answer?
6000 debentures were discharged by issuing Equity Shares of Rs. 10 each at 20% Premium. Find the number of shares issued.
a)
5000
b)
60000
c)
50000
d)
6000
|
|
Dipika Kaur answered |
Given:
Number of debentures discharged = 6000
Face value of Equity Shares = Rs. 10 each
Premium on Equity Shares = 20%
To find:
Number of Equity Shares issued
Solution:
1. Calculation of Face Value of Debentures:
Since the number of debentures has been discharged by issuing Equity Shares, we can assume that the face value of debentures is equal to the face value of Equity Shares.
Face Value of Debentures = Face Value of Equity Shares = Rs. 10
2. Calculation of Total Value of Debentures:
Total Value of Debentures = Face Value of Debentures x Number of Debentures
Total Value of Debentures = Rs. 10 x 6000 = Rs. 60,000
3. Calculation of Premium on Equity Shares:
Premium on Equity Shares = 20% of Face Value of Equity Shares
Premium on Equity Shares = 20% of Rs. 10 = Rs. 2
4. Calculation of Total Value of Equity Shares:
Total Value of Equity Shares = (Face Value + Premium) x Number of Equity Shares
Total Value of Equity Shares = (Rs. 10 + Rs. 2) x Number of Equity Shares
Total Value of Equity Shares = Rs. 12 x Number of Equity Shares
5. Calculation of Number of Equity Shares:
Total Value of Debentures = Total Value of Equity Shares
Rs. 60,000 = Rs. 12 x Number of Equity Shares
Number of Equity Shares = Rs. 60,000 / Rs. 12
Number of Equity Shares = 5000
Therefore, the number of Equity Shares issued is 5000.
Number of debentures discharged = 6000
Face value of Equity Shares = Rs. 10 each
Premium on Equity Shares = 20%
To find:
Number of Equity Shares issued
Solution:
1. Calculation of Face Value of Debentures:
Since the number of debentures has been discharged by issuing Equity Shares, we can assume that the face value of debentures is equal to the face value of Equity Shares.
Face Value of Debentures = Face Value of Equity Shares = Rs. 10
2. Calculation of Total Value of Debentures:
Total Value of Debentures = Face Value of Debentures x Number of Debentures
Total Value of Debentures = Rs. 10 x 6000 = Rs. 60,000
3. Calculation of Premium on Equity Shares:
Premium on Equity Shares = 20% of Face Value of Equity Shares
Premium on Equity Shares = 20% of Rs. 10 = Rs. 2
4. Calculation of Total Value of Equity Shares:
Total Value of Equity Shares = (Face Value + Premium) x Number of Equity Shares
Total Value of Equity Shares = (Rs. 10 + Rs. 2) x Number of Equity Shares
Total Value of Equity Shares = Rs. 12 x Number of Equity Shares
5. Calculation of Number of Equity Shares:
Total Value of Debentures = Total Value of Equity Shares
Rs. 60,000 = Rs. 12 x Number of Equity Shares
Number of Equity Shares = Rs. 60,000 / Rs. 12
Number of Equity Shares = 5000
Therefore, the number of Equity Shares issued is 5000.
Which of the following statements is false?- a)At maturity, debenture holders get back their money as per the terms and conditions of redemption
- b)Debentures can be forfeited for non payment of call money
- c)In company’s balance sheet, debentures are shown under secured loans
- d)Interest on debentures is charged against profits
Correct answer is option 'B'. Can you explain this answer?
Which of the following statements is false?
a)
At maturity, debenture holders get back their money as per the terms and conditions of redemption
b)
Debentures can be forfeited for non payment of call money
c)
In company’s balance sheet, debentures are shown under secured loans
d)
Interest on debentures is charged against profits
|
|
Srsps answered |
The false statement is B: Debentures can be forfeited for non-payment of call money.
Explanation:
Debentures and their characteristics:
- Debentures are long-term debt instruments issued by companies to raise funds from the public.
- They are considered as a form of loan taken by the company from the investors.
- Debenture holders are the creditors of the company, and they have a fixed claim on the company's assets.
- Debentures have a fixed maturity date, and the company promises to repay the principal amount at the time of maturity.
Analysis of the given statements:
A: At maturity, debenture holders get back their money as per the terms and conditions of redemption.
- True. Debenture holders are entitled to receive the principal amount at the time of maturity as per the terms and conditions mentioned in the debenture agreement.
B: Debentures can be forfeited for non-payment of call money.
- False. Debentures cannot be forfeited for non-payment of call money. Call money refers to the amount payable by the debenture holders when the company exercises the option to redeem the debentures before their maturity. If the debenture holders fail to pay the call money, the company cannot forfeit the debentures.
C: In the company's balance sheet, debentures are shown under secured loans.
- True. Debentures are categorized as long-term borrowings and are shown under secured loans in the company's balance sheet. This is because debentures are backed by the company's assets, providing security to the debenture holders.
D: Interest on debentures is charged against profits.
- True. Interest on debentures is a financial expense for the company and is charged against profits in the income statement. It is considered as a cost of borrowing for the company.
In conclusion, the false statement is B: Debentures can be forfeited for non-payment of call money.
A Ltd. issued 10,000 12% Debentures of Rs. 10 each at par which are redeemable at the end of each year in equal lots in 5 years at a premium of 30%. The amount of loss on redemption of debentures to be written off in fourth and fifth year will be:
- a)Rs. 10,000, Nil
- b)Rs. 4,000, 4000
- c)Rs. 4,000, 2000
- d)Rs. 6,000, 24000
Correct answer is option 'D'. Can you explain this answer?
A Ltd. issued 10,000 12% Debentures of Rs. 10 each at par which are redeemable at the end of each year in equal lots in 5 years at a premium of 30%. The amount of loss on redemption of debentures to be written off in fourth and fifth year will be:
a)
Rs. 10,000, Nil
b)
Rs. 4,000, 4000
c)
Rs. 4,000, 2000
d)
Rs. 6,000, 24000
|
KP Classes answered |
Loss on Redemption of Debentures
To calculate the loss on redemption of debentures in the fourth and fifth year, we need to consider the premium amount and the face value of the debentures.
Given:
- Number of debentures issued = 10,000
- Face value of each debenture = Rs. 10
- Premium on each debenture = 30%
Step 1: Calculate the Premium Amount
The premium on each debenture is 30% of the face value. So, the premium amount per debenture is:
Premium amount = 30/100 * Rs. 10 = Rs. 3
Step 2: Calculate the Total Premium Amount
To calculate the total premium amount, we multiply the premium amount per debenture by the number of debentures issued.
Total Premium Amount = Rs. 3 * 10,000 = Rs. 30,000
Step 3: Calculate the Redemption Value
The redemption value is the sum of the face value and the premium amount. In this case, since the debentures are redeemable in equal lots over 5 years, the redemption value will remain the same for each lot.
Redemption Value = Face Value + Premium Amount = Rs. 10 + Rs. 3 = Rs. 13
Step 4: Calculate the Loss on Redemption
The loss on redemption is the difference between the redemption value and the face value. In this case, since the debentures were issued at par, the face value is equal to the issue price.
Loss on Redemption = Redemption Value - Face Value = Rs. 13 - Rs. 10 = Rs. 3
Step 5: Allocate the Loss on Redemption
Since the debentures are redeemable in equal lots over 5 years, we need to allocate the loss on redemption over these years. The total loss on redemption is Rs. 3 for each debenture.
In the fourth year, 1/5th of the debentures will be redeemed. So, the loss on redemption in the fourth year will be:
Loss on Redemption in Fourth Year = Rs. 3 * (1/5) * 10,000 = Rs. 6,000
In the fifth year, the remaining 4/5th of the debentures will be redeemed. So, the loss on redemption in the fifth year will be:
Loss on Redemption in Fifth Year = Rs. 3 * (4/5) * 10,000 = Rs. 24,000
Therefore, the correct answer is option D: Rs. 6,000, Rs. 24,000.
To calculate the loss on redemption of debentures in the fourth and fifth year, we need to consider the premium amount and the face value of the debentures.
Given:
- Number of debentures issued = 10,000
- Face value of each debenture = Rs. 10
- Premium on each debenture = 30%
Step 1: Calculate the Premium Amount
The premium on each debenture is 30% of the face value. So, the premium amount per debenture is:
Premium amount = 30/100 * Rs. 10 = Rs. 3
Step 2: Calculate the Total Premium Amount
To calculate the total premium amount, we multiply the premium amount per debenture by the number of debentures issued.
Total Premium Amount = Rs. 3 * 10,000 = Rs. 30,000
Step 3: Calculate the Redemption Value
The redemption value is the sum of the face value and the premium amount. In this case, since the debentures are redeemable in equal lots over 5 years, the redemption value will remain the same for each lot.
Redemption Value = Face Value + Premium Amount = Rs. 10 + Rs. 3 = Rs. 13
Step 4: Calculate the Loss on Redemption
The loss on redemption is the difference between the redemption value and the face value. In this case, since the debentures were issued at par, the face value is equal to the issue price.
Loss on Redemption = Redemption Value - Face Value = Rs. 13 - Rs. 10 = Rs. 3
Step 5: Allocate the Loss on Redemption
Since the debentures are redeemable in equal lots over 5 years, we need to allocate the loss on redemption over these years. The total loss on redemption is Rs. 3 for each debenture.
In the fourth year, 1/5th of the debentures will be redeemed. So, the loss on redemption in the fourth year will be:
Loss on Redemption in Fourth Year = Rs. 3 * (1/5) * 10,000 = Rs. 6,000
In the fifth year, the remaining 4/5th of the debentures will be redeemed. So, the loss on redemption in the fifth year will be:
Loss on Redemption in Fifth Year = Rs. 3 * (4/5) * 10,000 = Rs. 24,000
Therefore, the correct answer is option D: Rs. 6,000, Rs. 24,000.
A debenture of Rs. 100 is issued at Rs. 110.It is an example of- a)Debenture issued at discount
- b)Debenture issued at premium
- c)Debenture issued at par
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
A debenture of Rs. 100 is issued at Rs. 110.It is an example of
a)
Debenture issued at discount
b)
Debenture issued at premium
c)
Debenture issued at par
d)
None of these
|
Krithika Kulkarni answered |
When a company issue its debentures at a price more than its actual price, it is known as debentures issued at premium.
Which of the following statements is false?
- a)At maturity, debenture holders get back their money as per the terms and conditions of redemption
- b)Debentures can be forfeited for non payment of call money
- c)In company’s balance sheet, debentures are shown under secured loans
- d)Interest on debentures is charged against profits
Correct answer is option 'B'. Can you explain this answer?
Which of the following statements is false?
a)
At maturity, debenture holders get back their money as per the terms and conditions of redemption
b)
Debentures can be forfeited for non payment of call money
c)
In company’s balance sheet, debentures are shown under secured loans
d)
Interest on debentures is charged against profits
|
Ritu Majhi Majhi answered |
Debenture is a debt for the company .It is like loan for the company and it is secured by creating charge on assets of the company. only shares are forfeited for non-payment of call money not debentures. hence option B is false
A debenture holder has no________- a)Right for interest on debentures
- b)Voting Right
- c)Right for Redemption of Debentures
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
A debenture holder has no________
a)
Right for interest on debentures
b)
Voting Right
c)
Right for Redemption of Debentures
d)
None of these
|
Rhea Choudhary answered |
In a company only those people are shareholder can vote but debenture holders are not allowed to vote. The simple reason is debenture holders are treated as outsiders and shareholders are treated as insiders.
Debentures are generally secured by __________- a)A charge on liabilities
- b)Bank Overdraft
- c)Bank Loan
- d)A charge on asset
Correct answer is option 'D'. Can you explain this answer?
Debentures are generally secured by __________
a)
A charge on liabilities
b)
Bank Overdraft
c)
Bank Loan
d)
A charge on asset
|
Samridhi Kaur answered |
Debentures are generally secured by a charge on assets. It shows that debentures are not issued for cash or kind but have been issued as a security for the loan obtained.
Which of the following statement is not correct?- a)A Debenture holder is a lender
- b)Debenture is considered as external equity
- c)Debentures can be issued at discount
- d)Debentures are completely unsafe
Correct answer is option 'D'. Can you explain this answer?
Which of the following statement is not correct?
a)
A Debenture holder is a lender
b)
Debenture is considered as external equity
c)
Debentures can be issued at discount
d)
Debentures are completely unsafe
|
Arjun Saini answered |
Debentures and their Characteristics
Debentures are a form of long-term debt instrument issued by a company or organization to raise capital for their business. The holders of debentures are creditors or lenders to the company. Debentures have certain characteristics that differentiate them from other forms of debt instruments.
Correct and Incorrect Statements about Debentures
a) A Debenture holder is a lender - Correct Statement
Debenture holders are creditors or lenders to the company who lend money to the company and receive interest on their investment.
b) Debenture is considered as external equity - Incorrect Statement
Debenture is not considered as external equity, as it is a form of debt instrument and not equity. Equity refers to ownership in the company, whereas debentures represent a loan to the company.
c) Debentures can be issued at discount - Correct Statement
Debentures can be issued at a discount, which means that they can be sold for a price lower than their face value. This is done to attract investors and raise capital for the company.
d) Debentures are completely unsafe - Incorrect Statement
Debentures are a form of secured or unsecured debt instrument, which means that they can be secured against the assets of the company. Therefore, debenture holders have a priority claim on the assets of the company in case of default. However, debentures are less safe than other forms of debt instruments like government bonds, as they carry a higher risk of default.
Conclusion
In conclusion, debentures are a form of long-term debt instrument issued by companies or organizations to raise capital. Debenture holders are lenders or creditors to the company who lend money and receive interest on their investment. Debentures can be issued at a discount, and they are not completely unsafe as they can be secured against the assets of the company. However, they carry a higher risk of default compared to other forms of debt instruments.
Debentures are a form of long-term debt instrument issued by a company or organization to raise capital for their business. The holders of debentures are creditors or lenders to the company. Debentures have certain characteristics that differentiate them from other forms of debt instruments.
Correct and Incorrect Statements about Debentures
a) A Debenture holder is a lender - Correct Statement
Debenture holders are creditors or lenders to the company who lend money to the company and receive interest on their investment.
b) Debenture is considered as external equity - Incorrect Statement
Debenture is not considered as external equity, as it is a form of debt instrument and not equity. Equity refers to ownership in the company, whereas debentures represent a loan to the company.
c) Debentures can be issued at discount - Correct Statement
Debentures can be issued at a discount, which means that they can be sold for a price lower than their face value. This is done to attract investors and raise capital for the company.
d) Debentures are completely unsafe - Incorrect Statement
Debentures are a form of secured or unsecured debt instrument, which means that they can be secured against the assets of the company. Therefore, debenture holders have a priority claim on the assets of the company in case of default. However, debentures are less safe than other forms of debt instruments like government bonds, as they carry a higher risk of default.
Conclusion
In conclusion, debentures are a form of long-term debt instrument issued by companies or organizations to raise capital. Debenture holders are lenders or creditors to the company who lend money and receive interest on their investment. Debentures can be issued at a discount, and they are not completely unsafe as they can be secured against the assets of the company. However, they carry a higher risk of default compared to other forms of debt instruments.
Vinod Limited has 5,000, 11% Debentures which are to be redeemed within the 8 Months from the date of previous balance sheet. How will you show these debentures in the balance sheet?- a)Long Term Borrowings
- b)Under Other Current Liabilities
- c)Short Term Borrowings
- d)Trade payables
Correct answer is option 'B'. Can you explain this answer?
Vinod Limited has 5,000, 11% Debentures which are to be redeemed within the 8 Months from the date of previous balance sheet. How will you show these debentures in the balance sheet?
a)
Long Term Borrowings
b)
Under Other Current Liabilities
c)
Short Term Borrowings
d)
Trade payables
|
Vikas Kapoor answered |
When debentures become due for the redemption they are shown under the heading of Current Liabilities and sub heading Other Current Liabilities.
Securities Premium received on debentures is a…….- a)Fixed Asset
- b)Capital Profit
- c)Current Asset
- d)Capital Loss
Correct answer is option 'B'. Can you explain this answer?
Securities Premium received on debentures is a…….
a)
Fixed Asset
b)
Capital Profit
c)
Current Asset
d)
Capital Loss
|
Ruchi Basak answered |
Type of income earned by a company when it issues debentures at a price higher than their face value. This additional amount received by the company is called securities premium. It is a capital receipt and is shown on the liability side of the balance sheet under the head "Reserves and Surplus". The securities premium can be used by the company for various purposes such as paying off debts, financing capital expenditures, or distributing dividends to shareholders. However, it cannot be used for payment of dividends to preference shareholders.
Non-Convertible Debentures ------ a)Cannot not be issued
- b)Cannot apply for interest
- c)Cannot be redeemed
- d)Cannot be converted into shares
Correct answer is option 'D'. Can you explain this answer?
Non-Convertible Debentures -----
a)
Cannot not be issued
b)
Cannot apply for interest
c)
Cannot be redeemed
d)
Cannot be converted into shares
|
Pooja Nair answered |
Nonconvertible debentures are those which cannot be converted into shares. These debentures are entitled for interest and can be redeemed normally at the time of maturity.
Vinod Limited issued 12%, 1,000 Debentures @ 100 each at a premium of 10%. What will be the first journal entry?- a)Bank A/c Dr. 1,10,000
To Debentures App. & Allot. A/c 1,10,000 - b)Bank A/c Dr. 1,10,000
To Debentures App. & Allot. A/c 1,00,000
To Securities premium 10,000 - c)Bank A/c Dr. 1,00,000
To Debentures App. & Allot. A/c 1,00,000 - d)12% Debentures A/c Dr. 1,10,000 To Debentures App. & Allot. A/c 1,10,000
Correct answer is option 'A'. Can you explain this answer?
Vinod Limited issued 12%, 1,000 Debentures @ 100 each at a premium of 10%. What will be the first journal entry?
a)
Bank A/c Dr. 1,10,000
To Debentures App. & Allot. A/c 1,10,000
To Debentures App. & Allot. A/c 1,10,000
b)
Bank A/c Dr. 1,10,000
To Debentures App. & Allot. A/c 1,00,000
To Securities premium 10,000
To Debentures App. & Allot. A/c 1,00,000
To Securities premium 10,000
c)
Bank A/c Dr. 1,00,000
To Debentures App. & Allot. A/c 1,00,000
To Debentures App. & Allot. A/c 1,00,000
d)
12% Debentures A/c Dr. 1,10,000 To Debentures App. & Allot. A/c 1,10,000
|
Sounak Chaudhary answered |
Following journal entry will be recorded for the issue of debentures:
Bank A/c Dr. 1,10,000
To Debentures App. & Allot. A/c 1,10,000
Note: In this entry there is no need to show premium separately.
Bank A/c Dr. 1,10,000
To Debentures App. & Allot. A/c 1,10,000
Note: In this entry there is no need to show premium separately.
Loss on issue of debentures is treated as ___________.- a)Intangible asset
- b)Current asset
- c)Current liability
- d)Other non-current asset
Correct answer is option 'D'. Can you explain this answer?
Loss on issue of debentures is treated as ___________.
a)
Intangible asset
b)
Current asset
c)
Current liability
d)
Other non-current asset
|
Freedom Institute answered |
Correct option is D)
Loss on issue of debentures eans the difference between the Redeemable Value and the Face Value. It is treated as a Miscellaneous expenditure and is debited to "Loss on Issue of Debentures Account."
Analyse the case given below and answer the questions that follow :Nikhil Technologies Ltd. issued 5,000; 9% Debentures of ₹100 each at a premium of ₹20 payable as follows:(i) ₹40 including premium of ₹10 on application(ii) ₹40 including premium of ₹10 on allotment(iii) Balance as first and final call.Applications were received for 5,000 debentures and allotment was made to all the applicants. All the calls were made, and amounts received.Q. What amount of the money received in application is transferred to the securities premium reserve account:- a)₹5,00,000
- b)₹50,000
- c)₹1,00,00
- d)₹2,00,000
Correct answer is option 'B'. Can you explain this answer?
Analyse the case given below and answer the questions that follow :
Nikhil Technologies Ltd. issued 5,000; 9% Debentures of ₹100 each at a premium of ₹20 payable as follows:
(i) ₹40 including premium of ₹10 on application
(ii) ₹40 including premium of ₹10 on allotment
(iii) Balance as first and final call.
Applications were received for 5,000 debentures and allotment was made to all the applicants. All the calls were made, and amounts received.
Q. What amount of the money received in application is transferred to the securities premium reserve account:
a)
₹5,00,000
b)
₹50,000
c)
₹1,00,00
d)
₹2,00,000
|
|
Amita Das answered |
5000 × ₹10 = ₹50,000
Which of the following statements is false?- a)A company can issue convertible debentures
- b)Debentures cannot be secured
- c)A company can issue redeemable debentures
- d)Debentures have no right to participate in profits over and above their fixed interest
Correct answer is option 'B'. Can you explain this answer?
Which of the following statements is false?
a)
A company can issue convertible debentures
b)
Debentures cannot be secured
c)
A company can issue redeemable debentures
d)
Debentures have no right to participate in profits over and above their fixed interest
|
|
Harshad Kapoor answered |
Debentures and their characteristics:
Debentures are long-term debt instruments issued by companies to raise funds. They have certain characteristics that make them unique financial instruments.
Convertible debentures:
- A company can issue convertible debentures, which give the holder the option to convert them into equity shares after a certain period of time. This provides flexibility to the investor and can be attractive in certain situations.
Redeemable debentures:
- A company can issue redeemable debentures, which means that the company has the option to buy back the debentures at a specified future date. This provides a certain level of security to the investor.
Participation in profits:
- Debentures do not have a right to participate in profits over and above their fixed interest. Unlike equity shareholders, debenture holders do not have ownership rights in the company and are entitled only to the fixed interest specified in the debenture agreement.
Secured debentures:
- Debentures can be secured by company assets, which means that in case of default by the company, the debenture holders have a claim on the specified assets to recover their investment. This provides a level of security to the debenture holders.
In conclusion, the statement "Debentures cannot be secured" is false. Debentures can indeed be secured by company assets, providing a level of security to the investors.
Debentures are long-term debt instruments issued by companies to raise funds. They have certain characteristics that make them unique financial instruments.
Convertible debentures:
- A company can issue convertible debentures, which give the holder the option to convert them into equity shares after a certain period of time. This provides flexibility to the investor and can be attractive in certain situations.
Redeemable debentures:
- A company can issue redeemable debentures, which means that the company has the option to buy back the debentures at a specified future date. This provides a certain level of security to the investor.
Participation in profits:
- Debentures do not have a right to participate in profits over and above their fixed interest. Unlike equity shareholders, debenture holders do not have ownership rights in the company and are entitled only to the fixed interest specified in the debenture agreement.
Secured debentures:
- Debentures can be secured by company assets, which means that in case of default by the company, the debenture holders have a claim on the specified assets to recover their investment. This provides a level of security to the debenture holders.
In conclusion, the statement "Debentures cannot be secured" is false. Debentures can indeed be secured by company assets, providing a level of security to the investors.
Analyse the case given below and answer the questions that follow :Nikhil Technologies Ltd. issued 5,000; 9% Debentures of ₹100 each at a premium of ₹20 payable as follows:(i) ₹40 including premium of ₹10 on application(ii) ₹40 including premium of ₹10 on allotment(iii) Balance as first and final call.Applications were received for 5,000 debentures and allotment was made to all the applicants. All the calls were made, and amounts received.Q. What is the total interest payable on the debentures issued?- a)₹1,20,000
- b)₹45,000
- c)₹18,000
- d)₹54,000
Correct answer is option 'B'. Can you explain this answer?
Analyse the case given below and answer the questions that follow :
Nikhil Technologies Ltd. issued 5,000; 9% Debentures of ₹100 each at a premium of ₹20 payable as follows:
(i) ₹40 including premium of ₹10 on application
(ii) ₹40 including premium of ₹10 on allotment
(iii) Balance as first and final call.
Applications were received for 5,000 debentures and allotment was made to all the applicants. All the calls were made, and amounts received.
Q. What is the total interest payable on the debentures issued?
a)
₹1,20,000
b)
₹45,000
c)
₹18,000
d)
₹54,000
|
Stuti Kumar answered |
Total interest payable on the debentures issued can be calculated by multiplying the number of debentures issued with the interest rate and the face value of each debenture.
Given that Nikhil Technologies Ltd. issued 5,000 debentures of ₹100 each at a premium of ₹20, the face value of each debenture is ₹100 and the premium is ₹20.
The interest rate on the debentures is given as 9%. Therefore, the total interest payable on the debentures can be calculated as follows:
Total interest payable = Number of debentures issued * Interest rate * Face value
Total interest payable = 5,000 * 9/100 * ₹100
Total interest payable = ₹45,000
Therefore, the total interest payable on the debentures issued is ₹45,000.
In this case, the correct answer is option 'B' - ₹45,000.
Explanation:
The total interest payable on the debentures issued is calculated by multiplying the number of debentures issued (5,000) with the interest rate (9%) and the face value of each debenture (₹100). This calculation gives the total interest payable of ₹45,000.
It is important to note that the premium amount is not included in the calculation of total interest payable. The premium is an additional amount paid by the debenture holders over and above the face value of the debentures.
In this case, the premium is ₹20 per debenture. The premium amount is payable by the debenture holders on application and allotment. However, the premium amount is not considered while calculating the interest payable.
Therefore, the total interest payable on the debentures issued is ₹45,000.
Given that Nikhil Technologies Ltd. issued 5,000 debentures of ₹100 each at a premium of ₹20, the face value of each debenture is ₹100 and the premium is ₹20.
The interest rate on the debentures is given as 9%. Therefore, the total interest payable on the debentures can be calculated as follows:
Total interest payable = Number of debentures issued * Interest rate * Face value
Total interest payable = 5,000 * 9/100 * ₹100
Total interest payable = ₹45,000
Therefore, the total interest payable on the debentures issued is ₹45,000.
In this case, the correct answer is option 'B' - ₹45,000.
Explanation:
The total interest payable on the debentures issued is calculated by multiplying the number of debentures issued (5,000) with the interest rate (9%) and the face value of each debenture (₹100). This calculation gives the total interest payable of ₹45,000.
It is important to note that the premium amount is not included in the calculation of total interest payable. The premium is an additional amount paid by the debenture holders over and above the face value of the debentures.
In this case, the premium is ₹20 per debenture. The premium amount is payable by the debenture holders on application and allotment. However, the premium amount is not considered while calculating the interest payable.
Therefore, the total interest payable on the debentures issued is ₹45,000.
Which of the following is/are true with respect to debentures?- a)They can be issued for cash
- b)They can be issued for consideration other than cash
- c)They cannot be issued s collateral security
- d) Both (a) and (b) above
Correct answer is option 'D'. Can you explain this answer?
Which of the following is/are true with respect to debentures?
a)
They can be issued for cash
b)
They can be issued for consideration other than cash
c)
They cannot be issued s collateral security
d)
Both (a) and (b) above
|
|
Arun Khanna answered |
Debentures are debt instruments issued by a joint stock company. Amounts collected byway of debentures form part of the loan capital of a company. They are repayable after afixed period. Debentures are issued in units of small value for convenient buying andselling. Debenture holders get interest on their debentures. They are creditors of thecompany. They do not get dividend. Only shareholders get dividend.
(A) Issue of Debenture for Cash:
The issue procedure with regard to debentures is the same as that of shares. The amount due on debentures may be paid in installments, such as, Application, Allotment and Calls. When debentures are issued at premium, the amount of premium is credited to Debenture Premium Account. Debenture Premium Account is a capital profit and is transferred to Capital Reserve Account.
(B)Debentures Issued for Consideration Other than Cash:
Sometimes, a company purchases a running business (assets and liabilities) and issues to vendor, debentures as consideration. It is called issue of debentures in consideration, other than cash.
Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:Assertion (A): Sarita Pvt. Ltd. issued 15% 10,000 debentures at par @ Rs. 100 per debenture. The company suffered a loss but still the directors of the company paid interest on debentures.Reason (R): Interest on debenture is a charge against profits and therefore, its payment is not subject to the earning of profit.- a)Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
- b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
- c)Assertion (A) is true, but Reason (R) is false .
- d)Assertion (A) is false, but Reason (R) is true.
Correct answer is option 'A'. Can you explain this answer?
Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
Assertion (A): Sarita Pvt. Ltd. issued 15% 10,000 debentures at par @ Rs. 100 per debenture. The company suffered a loss but still the directors of the company paid interest on debentures.
Reason (R): Interest on debenture is a charge against profits and therefore, its payment is not subject to the earning of profit.
a)
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
b)
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
c)
Assertion (A) is true, but Reason (R) is false .
d)
Assertion (A) is false, but Reason (R) is true.
|
Ishan Choudhury answered |
Interest on debenture is to be paid even if the company suffers a loss.
In the balance sheet of a Company, Debentures are shown under the head: - a)Secured Loans
- b)Unsecured Loans
- c)Reserves and Surplus
- d)Current liabilities
Correct answer is option 'A'. Can you explain this answer?
In the balance sheet of a Company, Debentures are shown under the head:
a)
Secured Loans
b)
Unsecured Loans
c)
Reserves and Surplus
d)
Current liabilities
|
|
Prasenjit Kapoor answered |
Debentures are a type of long-term borrowing for companies. In the balance sheet of a company, debentures are shown under the head of secured loans. Let us understand this in detail:
Secured Loans:
Secured loans are loans that are backed by some form of collateral or security. In the case of debentures, the company issues debentures to investors and offers some form of security as collateral. This collateral could be in the form of assets, properties, or other securities. As debentures are backed by collateral, they are considered as secured loans.
Unsecured Loans:
Unsecured loans are not backed by any collateral or security. In the case of unsecured loans, the lender relies on the borrower's creditworthiness and reputation. Debentures are not considered as unsecured loans as they are backed by some form of collateral.
Reserves and Surplus:
Reserves and surplus are the profits that a company has accumulated over the years. These profits are retained by the company and are not distributed as dividends. Debentures are not considered as reserves and surplus as they are a type of borrowing.
Current Liabilities:
Current liabilities are the obligations that a company needs to pay within a year. Debentures are a type of long-term borrowing and are not considered as current liabilities.
In conclusion, the correct answer is option 'A' as debentures are shown under the head of secured loans in the balance sheet of a company.
Secured Loans:
Secured loans are loans that are backed by some form of collateral or security. In the case of debentures, the company issues debentures to investors and offers some form of security as collateral. This collateral could be in the form of assets, properties, or other securities. As debentures are backed by collateral, they are considered as secured loans.
Unsecured Loans:
Unsecured loans are not backed by any collateral or security. In the case of unsecured loans, the lender relies on the borrower's creditworthiness and reputation. Debentures are not considered as unsecured loans as they are backed by some form of collateral.
Reserves and Surplus:
Reserves and surplus are the profits that a company has accumulated over the years. These profits are retained by the company and are not distributed as dividends. Debentures are not considered as reserves and surplus as they are a type of borrowing.
Current Liabilities:
Current liabilities are the obligations that a company needs to pay within a year. Debentures are a type of long-term borrowing and are not considered as current liabilities.
In conclusion, the correct answer is option 'A' as debentures are shown under the head of secured loans in the balance sheet of a company.
When debentures are issued as collateral security, the final entry for recording the transaction in the books is __________.- a)Credit debentures a/c. and debit cash a/c.
- b)Debit debenture suspense a/c. and credit cash a/c.
- c)Debit debenture suspense a/c. and credit debentures a/c.
- d)Debit cash a/c. and credit the loan a/c. for which security is given
Correct answer is option 'C'. Can you explain this answer?
When debentures are issued as collateral security, the final entry for recording the transaction in the books is __________.
a)
Credit debentures a/c. and debit cash a/c.
b)
Debit debenture suspense a/c. and credit cash a/c.
c)
Debit debenture suspense a/c. and credit debentures a/c.
d)
Debit cash a/c. and credit the loan a/c. for which security is given
|
|
Nilanjan Saha answered |
Recording the Issue of Debentures as Collateral Security
The final entry for recording the transaction in the books when debentures are issued as collateral security is as follows:
Debit Debenture Suspense A/c and Credit Debentures A/c.
Explanation:
When debentures are issued as collateral security, the debentures are pledged as a security against a loan taken by the company. The company receives cash in exchange for the debentures pledged. The following are the steps involved in recording the transaction in the books:
1. Create a Debenture Suspense Account: A debenture suspense account is created to record the debentures issued as collateral security.
2. Debit the Debenture Suspense Account: The debenture suspense account is debited to show the increase in the debentures issued as collateral security.
3. Credit the Debentures Account: The debentures account is credited to show the decrease in the debentures held by the company.
Thus, the final entry for recording the transaction in the books is to debit the Debenture Suspense A/c and credit the Debentures A/c.
Conclusion:
When debentures are issued as collateral security, the final entry for recording the transaction in the books is to debit the Debenture Suspense A/c and credit the Debentures A/c. This entry helps in maintaining the accurate records of the debentures issued as collateral security and the debentures held by the company.
The final entry for recording the transaction in the books when debentures are issued as collateral security is as follows:
Debit Debenture Suspense A/c and Credit Debentures A/c.
Explanation:
When debentures are issued as collateral security, the debentures are pledged as a security against a loan taken by the company. The company receives cash in exchange for the debentures pledged. The following are the steps involved in recording the transaction in the books:
1. Create a Debenture Suspense Account: A debenture suspense account is created to record the debentures issued as collateral security.
2. Debit the Debenture Suspense Account: The debenture suspense account is debited to show the increase in the debentures issued as collateral security.
3. Credit the Debentures Account: The debentures account is credited to show the decrease in the debentures held by the company.
Thus, the final entry for recording the transaction in the books is to debit the Debenture Suspense A/c and credit the Debentures A/c.
Conclusion:
When debentures are issued as collateral security, the final entry for recording the transaction in the books is to debit the Debenture Suspense A/c and credit the Debentures A/c. This entry helps in maintaining the accurate records of the debentures issued as collateral security and the debentures held by the company.
Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The company received application only for 1900 debentures. What is this situation called?- a)Full Subscription
- b)Under Subscription
- c)Pro-rata Allotment
- d)Over Subscription
Correct answer is option 'B'. Can you explain this answer?
Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The company received application only for 1900 debentures. What is this situation called?
a)
Full Subscription
b)
Under Subscription
c)
Pro-rata Allotment
d)
Over Subscription
|
Anushka Desai answered |
Under Subscription:
Under Subscription is a situation where the number of shares or debentures applied for by investors is less than the number of shares or debentures available for subscription. In other words, it refers to when the demand for securities is lower than the supply.
Explanation:
Vinod Limited invited applications for 2,000 debentures at a face value of 100 each, carrying an interest rate of 11%. However, the company received applications only for 1900 debentures. This means that the investors' demand for debentures was less than the number of debentures available for subscription.
Key Points:
- Vinod Limited invited applications for 2,000 debentures.
- The face value of each debenture is 100.
- The interest rate on the debentures is 11%.
- The company received applications for only 1900 debentures.
- The number of debentures applied for is less than the number of debentures available for subscription.
- This situation is called Under Subscription.
Impact of Under Subscription:
Under Subscription can have several implications for the company:
1. Lower Funds Raised: With under subscription, the company will receive less funds than expected. In this case, Vinod Limited will only be able to raise funds for 1900 debentures instead of the targeted 2000 debentures.
2. Unsold Securities: The remaining 100 debentures that were not subscribed for will remain unsold. This can be a potential loss for the company as it will not be able to utilize the funds from these unsold debentures.
3. Cash Flow Implications: The company's cash flow projections may need to be adjusted due to the lower funds raised. This can impact the company's ability to finance its operations and meet its financial obligations.
4. Interest Payments: Since the company received applications for 1900 debentures, it will only need to make interest payments on those debentures. The remaining 100 debentures will not generate any interest expense for the company.
Conclusion:
In this case, Vinod Limited experienced under subscription as the number of debentures applied for was less than the number of debentures available for subscription. This situation can have various implications for the company, including lower funds raised and potential cash flow challenges.
Under Subscription is a situation where the number of shares or debentures applied for by investors is less than the number of shares or debentures available for subscription. In other words, it refers to when the demand for securities is lower than the supply.
Explanation:
Vinod Limited invited applications for 2,000 debentures at a face value of 100 each, carrying an interest rate of 11%. However, the company received applications only for 1900 debentures. This means that the investors' demand for debentures was less than the number of debentures available for subscription.
Key Points:
- Vinod Limited invited applications for 2,000 debentures.
- The face value of each debenture is 100.
- The interest rate on the debentures is 11%.
- The company received applications for only 1900 debentures.
- The number of debentures applied for is less than the number of debentures available for subscription.
- This situation is called Under Subscription.
Impact of Under Subscription:
Under Subscription can have several implications for the company:
1. Lower Funds Raised: With under subscription, the company will receive less funds than expected. In this case, Vinod Limited will only be able to raise funds for 1900 debentures instead of the targeted 2000 debentures.
2. Unsold Securities: The remaining 100 debentures that were not subscribed for will remain unsold. This can be a potential loss for the company as it will not be able to utilize the funds from these unsold debentures.
3. Cash Flow Implications: The company's cash flow projections may need to be adjusted due to the lower funds raised. This can impact the company's ability to finance its operations and meet its financial obligations.
4. Interest Payments: Since the company received applications for 1900 debentures, it will only need to make interest payments on those debentures. The remaining 100 debentures will not generate any interest expense for the company.
Conclusion:
In this case, Vinod Limited experienced under subscription as the number of debentures applied for was less than the number of debentures available for subscription. This situation can have various implications for the company, including lower funds raised and potential cash flow challenges.
Ram limited has isuued 15% debentures of Rs.20,00,000 at a discount of 10% on April 1, 2012. The company pays interest half-yearly on June 30 and Dec 31 every year. On March 31, 2013 the amount shown as interest accrued but not yet due in the Balance Sheet will be:- a)Rs. 2,25,000
- b)Rs. 1,00,000
- c)Rs.75,000
- d)Rs. 3,00,000
Correct answer is option 'C'. Can you explain this answer?
Ram limited has isuued 15% debentures of Rs.20,00,000 at a discount of 10% on April 1, 2012. The company pays interest half-yearly on June 30 and Dec 31 every year. On March 31, 2013 the amount shown as interest accrued but not yet due in the Balance Sheet will be:
a)
Rs. 2,25,000
b)
Rs. 1,00,000
c)
Rs.75,000
d)
Rs. 3,00,000
|
Gowri Chavan answered |
Calculation of Interest Accrued but not yet due:
Interest on debentures = 15% of Rs. 20,00,000 = Rs. 3,00,000 per annum
Interest for the year:
Interest for the year 2012-2013 = Rs. 3,00,000 x 10/12 = Rs. 2,50,000
Interest accrued but not yet due:
Interest for 3 months (Jan, Feb, Mar 2013) = Rs. 3,00,000 x 3/12 = Rs. 75,000
Therefore, the amount shown as interest accrued but not yet due in the Balance Sheet on March 31, 2013, will be Rs. 75,000.
Interest on debentures = 15% of Rs. 20,00,000 = Rs. 3,00,000 per annum
Interest for the year:
Interest for the year 2012-2013 = Rs. 3,00,000 x 10/12 = Rs. 2,50,000
Interest accrued but not yet due:
Interest for 3 months (Jan, Feb, Mar 2013) = Rs. 3,00,000 x 3/12 = Rs. 75,000
Therefore, the amount shown as interest accrued but not yet due in the Balance Sheet on March 31, 2013, will be Rs. 75,000.
Which of the following is true with regard to 10% Debentures issued at a discount of 20%?- a)The carrying amount of debentures gets reduced each year at a rate of 20%
- b)Issue price and the carrying amount of debentures are equal
- c)At the time of redemption, the debenture holder will be paid the issue price
- d)The face value and the carrying amount of debentures are equal.
Correct answer is option 'D'. Can you explain this answer?
Which of the following is true with regard to 10% Debentures issued at a discount of 20%?
a)
The carrying amount of debentures gets reduced each year at a rate of 20%
b)
Issue price and the carrying amount of debentures are equal
c)
At the time of redemption, the debenture holder will be paid the issue price
d)
The face value and the carrying amount of debentures are equal.
|
|
Niharika Joshi answered |
Explanation:
When 10% Debentures are issued at a discount of 20%, it means that the issue price of the debentures is 80% of the face value of the debentures. Let's understand the implications of this on the carrying amount, redemption, and face value of the debentures.
Carrying Amount:
The carrying amount of debentures is the amount at which they are recorded in the books of accounts of the company. In the case of debentures issued at a discount, the carrying amount is lower than the face value of the debentures. However, the carrying amount does not get reduced each year at a rate of 20%. It remains the same until the debentures are redeemed.
Redemption:
At the time of redemption, the debenture holder will be paid the face value of the debentures. In the case of debentures issued at a discount, the face value is higher than the carrying amount. Therefore, the debenture holder will receive a higher amount than what was recorded in the books of accounts.
Face Value:
The face value of the debentures is the amount mentioned on the debenture certificate. In the case of debentures issued at a discount, the face value and the carrying amount of debentures are equal. This is because the discount is already accounted for in the carrying amount.
Conclusion:
Therefore, option D is the correct answer. Debentures issued at a discount do not have a reducing carrying amount. At the time of redemption, the debenture holder will receive the face value of the debentures, which is higher than the carrying amount. And, the face value and carrying amount of debentures are equal in the case of debentures issued at a discount.
When 10% Debentures are issued at a discount of 20%, it means that the issue price of the debentures is 80% of the face value of the debentures. Let's understand the implications of this on the carrying amount, redemption, and face value of the debentures.
Carrying Amount:
The carrying amount of debentures is the amount at which they are recorded in the books of accounts of the company. In the case of debentures issued at a discount, the carrying amount is lower than the face value of the debentures. However, the carrying amount does not get reduced each year at a rate of 20%. It remains the same until the debentures are redeemed.
Redemption:
At the time of redemption, the debenture holder will be paid the face value of the debentures. In the case of debentures issued at a discount, the face value is higher than the carrying amount. Therefore, the debenture holder will receive a higher amount than what was recorded in the books of accounts.
Face Value:
The face value of the debentures is the amount mentioned on the debenture certificate. In the case of debentures issued at a discount, the face value and the carrying amount of debentures are equal. This is because the discount is already accounted for in the carrying amount.
Conclusion:
Therefore, option D is the correct answer. Debentures issued at a discount do not have a reducing carrying amount. At the time of redemption, the debenture holder will receive the face value of the debentures, which is higher than the carrying amount. And, the face value and carrying amount of debentures are equal in the case of debentures issued at a discount.
A company issued 1,00,000, 12% debentures of Rs. 100 each. Calculate the amount of interest on debentures.
- a)Rs. 12,000
- b)Rs. 1,20,000
- c)Rs. 12,00,000
- d)None of these
Correct answer is option 'C'. Can you explain this answer?
A company issued 1,00,000, 12% debentures of Rs. 100 each. Calculate the amount of interest on debentures.
a)
Rs. 12,000
b)
Rs. 1,20,000
c)
Rs. 12,00,000
d)
None of these
|
|
KP Classes answered |
To calculate the amount of interest on the debentures, you can use the following formula:
Interest=Number of Debentures×Face Value of Each Debenture×Interest Rate
Given:
- Number of Debentures = 1,00,000
- Face Value of Each Debenture = Rs. 100
- Interest Rate = 12%
Now, substitute the values into the formula:
Interest=1,00,000×100×12/100
Interest=1,00,000×100×0.12=1,20,00,000 (Rs.)
So, the amount of interest on the debentures is Rs. 12,00,000.
Which of the following is false?- a)Equity is owners’ stake and the debenture is a debt
- b)Rate of interest on debentures is fixed
- c)Debenture holders get preferential treatment over the equity holders at the time of liquidation
- d)Interest on debentures is an appropriation of profits.
Correct answer is option 'D'. Can you explain this answer?
Which of the following is false?
a)
Equity is owners’ stake and the debenture is a debt
b)
Rate of interest on debentures is fixed
c)
Debenture holders get preferential treatment over the equity holders at the time of liquidation
d)
Interest on debentures is an appropriation of profits.
|
Sharmila Sharma answered |
Understanding the False Statement
The statement that is false is option ‘D’: "Interest on debentures is an appropriation of profits." Let’s delve into why this is incorrect.
1. Nature of Debentures
- Debentures represent a form of debt raised by a company.
- They are essentially loans taken by the company from debenture holders.
2. Fixed Interest Payments
- The rate of interest on debentures is predetermined and fixed.
- This means that the company is obliged to pay this interest irrespective of its profit levels.
3. Priority in Liquidation
- In the event of liquidation, debenture holders have a superior claim over equity holders.
- They are repaid before any distributions are made to shareholders.
4. Appropriation of Profits
- Interest on debentures is not an appropriation of profits; rather, it is treated as an expense.
- It is deducted from the company's earnings before arriving at net profit.
- This makes it a liability of the company, not a distribution of profits.
Conclusion
- Hence, the false statement is that “Interest on debentures is an appropriation of profits.”
- It is crucial to recognize that debenture interest is an obligation that affects the company's cash flow but does not directly represent profit distribution to shareholders.
Understanding these distinctions is essential for grasping the financial structure of a company and the treatment of different financing instruments.
The statement that is false is option ‘D’: "Interest on debentures is an appropriation of profits." Let’s delve into why this is incorrect.
1. Nature of Debentures
- Debentures represent a form of debt raised by a company.
- They are essentially loans taken by the company from debenture holders.
2. Fixed Interest Payments
- The rate of interest on debentures is predetermined and fixed.
- This means that the company is obliged to pay this interest irrespective of its profit levels.
3. Priority in Liquidation
- In the event of liquidation, debenture holders have a superior claim over equity holders.
- They are repaid before any distributions are made to shareholders.
4. Appropriation of Profits
- Interest on debentures is not an appropriation of profits; rather, it is treated as an expense.
- It is deducted from the company's earnings before arriving at net profit.
- This makes it a liability of the company, not a distribution of profits.
Conclusion
- Hence, the false statement is that “Interest on debentures is an appropriation of profits.”
- It is crucial to recognize that debenture interest is an obligation that affects the company's cash flow but does not directly represent profit distribution to shareholders.
Understanding these distinctions is essential for grasping the financial structure of a company and the treatment of different financing instruments.
Which of the following is false?- a)A company can issue irredeemable debentures
- b)A company can issue debentures with voting rights
- c)A company can buy its own shares
- d)A company can buy its own debentures
Correct answer is option 'B'. Can you explain this answer?
Which of the following is false?
a)
A company can issue irredeemable debentures
b)
A company can issue debentures with voting rights
c)
A company can buy its own shares
d)
A company can buy its own debentures
|
|
Ankita Mukherjee answered |
False Statement:
A company can issue debentures with voting rights.
Explanation:
Debentures are long-term debt instruments that are issued by companies to raise funds from the public. They are similar to bonds, but they are not secured by any assets of the company. Debentures are generally issued with a fixed rate of interest and a specific maturity date.
However, debentures do not carry any voting rights for the holders. This means that the holders of debentures cannot participate in the decision-making process of the company. They are only entitled to receive interest and principal payments as per the terms of the debenture agreement.
Therefore, option B is false, as a company cannot issue debentures with voting rights. Debentures only provide a fixed income to the holders and do not give them any ownership or control over the company.
Other options are true:
a) A company can issue irredeemable debentures: Irredeemable debentures are those that do not have any maturity date. They are perpetual in nature and the company is not required to repay the principal amount to the debenture holders. However, the company is still required to pay interest on such debentures.
b) A company can buy its own shares: A company can buy back its own shares from the market, which is known as share buyback. This is done to reduce the number of outstanding shares and increase the value of the remaining shares. However, there are certain restrictions and regulations that govern share buybacks.
c) A company can buy its own debentures: A company can also buy back its own debentures from the market, which is known as debenture buyback. This is done to reduce the debt burden on the company and improve its financial position. However, there are certain restrictions and regulations that govern debenture buybacks.
A company can issue debentures with voting rights.
Explanation:
Debentures are long-term debt instruments that are issued by companies to raise funds from the public. They are similar to bonds, but they are not secured by any assets of the company. Debentures are generally issued with a fixed rate of interest and a specific maturity date.
However, debentures do not carry any voting rights for the holders. This means that the holders of debentures cannot participate in the decision-making process of the company. They are only entitled to receive interest and principal payments as per the terms of the debenture agreement.
Therefore, option B is false, as a company cannot issue debentures with voting rights. Debentures only provide a fixed income to the holders and do not give them any ownership or control over the company.
Other options are true:
a) A company can issue irredeemable debentures: Irredeemable debentures are those that do not have any maturity date. They are perpetual in nature and the company is not required to repay the principal amount to the debenture holders. However, the company is still required to pay interest on such debentures.
b) A company can buy its own shares: A company can buy back its own shares from the market, which is known as share buyback. This is done to reduce the number of outstanding shares and increase the value of the remaining shares. However, there are certain restrictions and regulations that govern share buybacks.
c) A company can buy its own debentures: A company can also buy back its own debentures from the market, which is known as debenture buyback. This is done to reduce the debt burden on the company and improve its financial position. However, there are certain restrictions and regulations that govern debenture buybacks.
When an instrument is issued without interest rate and issue price is thereby discounted, the issue of such instrument is called ----- a)Light Discount bond
- b)Fixed coupon Bond
- c)Deep Discount Bond
- d)Deep zero bond
Correct answer is option 'C'. Can you explain this answer?
When an instrument is issued without interest rate and issue price is thereby discounted, the issue of such instrument is called ----
a)
Light Discount bond
b)
Fixed coupon Bond
c)
Deep Discount Bond
d)
Deep zero bond
|
Arya Reddy answered |
Sometimes a company issue an instrument on which rate of interest is not pre-determined. Such instruments are called Bond.
Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:Assertion (A): Debentures saves income tax.Reason (R): Interest on debenture is tax deductible expenditure.- a)Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
- b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
- c)Assertion (A) is true, but Reason (R) is false .
- d)Assertion (A) is false, but Reason (R) is true.
Correct answer is option 'A'. Can you explain this answer?
Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
Assertion (A): Debentures saves income tax.
Reason (R): Interest on debenture is tax deductible expenditure.
a)
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
b)
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
c)
Assertion (A) is true, but Reason (R) is false .
d)
Assertion (A) is false, but Reason (R) is true.
|
|
Amita Das answered |
Tax saving bonds enjoy special privileges under Section 80CCF of the Income Tax Act which states that individuals enjoy tax deductions up to Rs 20,000 on the bonds owned by them. This deduction is excluding the Rs 1.5 lakh provided under Section 80C of the Act.
Read the following information and answer the given questions:Charan Ltd. took over Assets of ₹6,00,000 and Liabilities of ₹40,000 of Paras Ltd. at an agreed value of ₹6,30,000. Charan Ltd. issued 10% Debentures of ₹100 each at a discount of 10% to Paras Ltd. in full satisfaction of the price. Charan Ltd. writes off any capital losses incurred during a year, at the end of that financial year.Q. What is the amount of discount given to Paras Ltd. on the issue of debentures?- a)₹60,000
- b)₹70,000
- c)₹75,000
- d)₹65,000
Correct answer is option 'B'. Can you explain this answer?
Read the following information and answer the given questions:
Charan Ltd. took over Assets of ₹6,00,000 and Liabilities of ₹40,000 of Paras Ltd. at an agreed value of ₹6,30,000. Charan Ltd. issued 10% Debentures of ₹100 each at a discount of 10% to Paras Ltd. in full satisfaction of the price. Charan Ltd. writes off any capital losses incurred during a year, at the end of that financial year.
Q. What is the amount of discount given to Paras Ltd. on the issue of debentures?
a)
₹60,000
b)
₹70,000
c)
₹75,000
d)
₹65,000
|
|
Amita Das answered |
₹7,00,000 – ₹6,30,000 = ₹70,000
Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The issue was oversubscribed by 5 times. What is this situation called?- a)Under Subscription
- b)Full Subscription
- c)Over Subscription
- d)Pro-rata Allotment
Correct answer is option 'C'. Can you explain this answer?
Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The issue was oversubscribed by 5 times. What is this situation called?
a)
Under Subscription
b)
Full Subscription
c)
Over Subscription
d)
Pro-rata Allotment
|
Sravya Banerjee answered |
When a company receives more applications for the debentures than the actual debentures offered for the subscription, it is known as over subscription.
Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:Assertion (A): Debenture holders are the creditors of the company carrying a fixed rate of interest.Reason (R): Debentures are short-term loans taken from the public.- a)Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
- b)Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
- c)Assertion (A) is true, but Reason (R) is false .
- d)Assertion (A) is false, but Reason (R) is true.
Correct answer is option 'C'. Can you explain this answer?
Directions : In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:
Assertion (A): Debenture holders are the creditors of the company carrying a fixed rate of interest.
Reason (R): Debentures are short-term loans taken from the public.
a)
Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
b)
Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
c)
Assertion (A) is true, but Reason (R) is false .
d)
Assertion (A) is false, but Reason (R) is true.
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Vikas Kapoor answered |
If a company needs funds for extension and development purposes without increasing its share capital, it can borrow from the general public by issuing certificates called debentures for a fixed period of time and at a fixed rate of interest. Debenture is a long-term debt instrument.
Read the following information and answer the given questions:Charan Ltd. took over Assets of ₹6,00,000 and Liabilities of ₹40,000 of Paras Ltd. at an agreed value of ₹6,30,000. Charan Ltd. issued 10% Debentures of ₹100 each at a discount of 10% to Paras Ltd. in full satisfaction of the price. Charan Ltd. writes off any capital losses incurred during a year, at the end of that financial year.Q. In which account is the difference between the assets and liabilities taken over and the payment made be transferred to?- a)General Reserve
- b)Debenture Redemption Reserve
- c)Capital Reserve
- d)Goodwill
Correct answer is option 'D'. Can you explain this answer?
Read the following information and answer the given questions:
Charan Ltd. took over Assets of ₹6,00,000 and Liabilities of ₹40,000 of Paras Ltd. at an agreed value of ₹6,30,000. Charan Ltd. issued 10% Debentures of ₹100 each at a discount of 10% to Paras Ltd. in full satisfaction of the price. Charan Ltd. writes off any capital losses incurred during a year, at the end of that financial year.
Q. In which account is the difference between the assets and liabilities taken over and the payment made be transferred to?
a)
General Reserve
b)
Debenture Redemption Reserve
c)
Capital Reserve
d)
Goodwill
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Moumita Chakraborty answered |
Understanding the Transaction
Charan Ltd. acquired assets and assumed liabilities of Paras Ltd. The key figures in this transaction are:
- Assets Taken Over: ₹6,00,000
- Liabilities Assumed: ₹40,000
- Net Assets: ₹6,00,000 - ₹40,000 = ₹5,60,000
- Agreed Value: ₹6,30,000
Calculation of Difference
The difference between the agreed value and the net assets is calculated as follows:
- Difference: ₹6,30,000 - ₹5,60,000 = ₹70,000
This difference represents the excess amount that Charan Ltd. is paying over the net assets taken from Paras Ltd.
Accounting Treatment of the Difference
In accounting, when a company pays more for the assets than their net book value, this excess amount is recognized as goodwill. Goodwill is an intangible asset that represents the value of a company's brand, customer relationships, and other non-physical assets.
- Goodwill Recognition: The ₹70,000 difference will be recorded as goodwill in the books of Charan Ltd.
Conclusion
Thus, the correct account to transfer the difference between the assets and liabilities taken over and the payment made is:
- Goodwill (Option D)
This treatment aligns with accounting principles where goodwill arises from acquiring a business at a premium over its net tangible assets.
Charan Ltd. acquired assets and assumed liabilities of Paras Ltd. The key figures in this transaction are:
- Assets Taken Over: ₹6,00,000
- Liabilities Assumed: ₹40,000
- Net Assets: ₹6,00,000 - ₹40,000 = ₹5,60,000
- Agreed Value: ₹6,30,000
Calculation of Difference
The difference between the agreed value and the net assets is calculated as follows:
- Difference: ₹6,30,000 - ₹5,60,000 = ₹70,000
This difference represents the excess amount that Charan Ltd. is paying over the net assets taken from Paras Ltd.
Accounting Treatment of the Difference
In accounting, when a company pays more for the assets than their net book value, this excess amount is recognized as goodwill. Goodwill is an intangible asset that represents the value of a company's brand, customer relationships, and other non-physical assets.
- Goodwill Recognition: The ₹70,000 difference will be recorded as goodwill in the books of Charan Ltd.
Conclusion
Thus, the correct account to transfer the difference between the assets and liabilities taken over and the payment made is:
- Goodwill (Option D)
This treatment aligns with accounting principles where goodwill arises from acquiring a business at a premium over its net tangible assets.
F Ltd. purchased Machinery from G Company for a book value of Rs.4,00,000. The consideration was paid by issue of 10% debentures of Rs.100 each at a discount of 20%.
The debenture account was credited with ______.- a)Rs.4,00,000
- b)Rs.5,00,000
- c)Rs.3,20,000
- d)Rs.4,80,000
Correct answer is option 'B'. Can you explain this answer?
F Ltd. purchased Machinery from G Company for a book value of Rs.4,00,000. The consideration was paid by issue of 10% debentures of Rs.100 each at a discount of 20%.
The debenture account was credited with ______.
The debenture account was credited with ______.
a)
Rs.4,00,000
b)
Rs.5,00,000
c)
Rs.3,20,000
d)
Rs.4,80,000
|
|
Lakshmi Kumar answered |
Solution:
Given,
Book value of Machinery = Rs.4,00,000
Consideration paid by issue of 10% Debentures of Rs.100 each at a discount of 20%.
Let's calculate the number of debentures issued:
Consideration paid = Book value of Machinery
Let the number of debentures issued be 'x'.
Then,
x * 100 * 80/100 = 4,00,000
x = 5,00,000/100
x = 5000
The debenture account was credited with:
The face value of each debenture = Rs.100
The number of debentures issued = 5000
So,
Face value of debentures issued = 100 * 5000 = Rs.5,00,000
Therefore, the correct option is B) Rs.5,00,000.
Given,
Book value of Machinery = Rs.4,00,000
Consideration paid by issue of 10% Debentures of Rs.100 each at a discount of 20%.
Let's calculate the number of debentures issued:
Consideration paid = Book value of Machinery
Let the number of debentures issued be 'x'.
Then,
x * 100 * 80/100 = 4,00,000
x = 5,00,000/100
x = 5000
The debenture account was credited with:
The face value of each debenture = Rs.100
The number of debentures issued = 5000
So,
Face value of debentures issued = 100 * 5000 = Rs.5,00,000
Therefore, the correct option is B) Rs.5,00,000.
Chapter doubts & questions for Issue and Redemption of Debentures - Accountancy CUET UG Mock Test Series 2026 2025 is part of Commerce exam preparation. The chapters have been prepared according to the Commerce exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for Commerce 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.
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Accountancy CUET UG Mock Test Series 2026
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