Test: Company Accounts Issue Of Debentures - 1 - Commerce MCQ

The correct answer is A: Personal Account.
Explanation:
Debenture Application Accounts is categorized as a Personal Account. Here's why:
1. Definition: A Personal Account is an account that represents individuals, organizations, or groups with whom a business entity has a financial relationship. It includes accounts of persons, firms, and companies.
2. Characteristics of Personal Account:
- Personal accounts record transactions with real persons or artificial persons (like companies).
- These accounts are classified into three categories: Natural, Artificial, and Representative Personal Accounts.
- Natural personal accounts are related to individuals. For example, accounts of customers, suppliers, owners, etc.
- Artificial personal accounts are related to organizations, institutions, or companies. For example, accounts of banks, companies, etc.
- Representative personal accounts are related to individuals or organizations acting on behalf of others. For example, accounts of agents, trustees, etc.
3. Debenture Application Accounts:
- Debenture Application Accounts are opened when a company invites applications from the public to subscribe to its debentures.
- These accounts record the amount of money received from individuals or organizations who have applied for the company's debentures.
4. Reason for Categorization as Personal Account:
- Debenture Application Accounts represent individuals or organizations who have applied for the company's debentures.
- These accounts are maintained to keep track of the amounts received from the applicants.
- As these accounts represent specific individuals or organizations, they fall under the category of Personal Accounts.
In conclusion, Debenture Application Accounts are categorized as Personal Accounts because they represent the individuals or organizations who have applied for the company's debentures.

Debenture Allotment Account is a personal account. It is Representative Personal Account.

Premium on Redemption of Debentures Account is a personal account. It is shown in the balance sheet (as premium due). Premium payable on redemption is treated as a loss and should be written off against the Statement of P/L.

Debenture holders are the creditors of a company because they are paid first at the time liquidation. Their payment is fixed, which has to be paid either firm is in profit or loss.

Discount on issue of debentures is treated as a fictitious asset and should be written off against the Statement of Profit and Loss.

Securities Premium received is a capital profit for a firm which is shown in the balance sheet under the heading Reserves and Surplus.

Debentures issued are shown under the heading of Non-current liabilities and sub-heading Long Term Borrowings.

Shareholders are paid after the debenture holders are paid interest. Debenture holders are paid the interest before the shareholders are paid. Shareholders are paid dividend out of profits and if the company is in losses they don't get dividend.

A Debenture is acknowledgment of debt and a contract for the repayment of principal amount with interest. Interest paid on debentures is a fixed charge and will be paid whether firm is in profit or loss.

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.