Test: Company Accounts Issue Of Debentures - 2 - Commerce MCQ

Rent paid to a partner is an expense for the business. All expenses and losses are considered as Nominal account. Rent paid to partner is a charge against the profit and it will be paid whether there is profit or loss in the business.

At the time of liquidation the payment to debenture holders is made on the priority bases and then to the shareholders.

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 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.

A company can issue its shares at par, premium and discount. But shares cannot be issued at discount.

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.

Debenture holders do not have dividend right. They can’t claim for dividend because dividend is only for the shareholders. Debenture holders get a fixed interest annually.

There are different types of debentures except Equity Debentures.
(i) Redeemable Debentures
(ii) Perpetual Debentures
(iii) Convertible Debentures
(iv) Coupon Rate Debentures

Debentures are safe in comparison of shares. Debentures are almost risk free because most of the time they are secured by a charge on the assets of the company.

(i) Security debentures are those which are secured by a fixed charge.
(ii) Priority Debentures are repaid before the other debentures.
(iii) Convertible debentures are those which can be converted into shares.

Premium on issue of debentures is considered as capital profit because it is not earned by the normal course of business operations. Any profit or gain earned by the company which is not part of the normal operating business is termed as capital profit.

Sometimes a company issue an instrument on which rate of interest is not pre-determined. Such instruments are called Bond.

When debentures become due for the redemption they are shown under the heading of Current Liabilities and sub heading Other Current Liabilities.

Interest on debentures is a charge against the profit. It means it will be paid whether the firm is in profit or loss. It will reduce the profit of the firm or it will increase the loss of the firm.

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.

A sole proprietor firm cannot issue debentures. Only those firms which are registered under the Companies Act, 2013 or before can issue debentures with the permission of SEBI.

When a company receives more applications for the debentures than the actual debentures offered for the subscription, it is known as over subscription.

When a company reject excess debenture applications received and paid back their money, in such a case bank account should be credited with the amount to be refunded to the applicants.

When a company receives less applications for the debentures than the actual debentures offered for the subscription, it is known as under subscription.

When a company issue its debentures at a price more than its actual price, it is known as debentures issued at premium.