CA Foundation Exam > CA Foundation Notes > Principles and Practice of Accounting > MCQ - Issue of Debentures
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Page 1 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah Page 2 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah MCQ's Page 3 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah MCQ's A debenture holder is an owner of the company A debenture holder can get his money back only on the liquidation of the company A debenture issued at a discount can be redeemed at a premium A debenture holder receives interest only in the event of profits ? ? ? ? Debenture holders are creditors of the co; not owner of the co. In redeemable Debentures : Life is decided at the time of issue. Statement is Correct Interest is compulsory expenditure even in loss. A B D C Page 4 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah MCQ's A debenture holder is an owner of the company A debenture holder can get his money back only on the liquidation of the company A debenture issued at a discount can be redeemed at a premium A debenture holder receives interest only in the event of profits ? ? ? ? Debenture holders are creditors of the co; not owner of the co. In redeemable Debentures : Life is decided at the time of issue. Statement is Correct Interest is compulsory expenditure even in loss. A B D C A real account A nominal account – income A personal account A nominal account – expenditure ? ? ? ? Belongs to shareholder’s so personal a/c A B D C Page 5 CPT Fundamentals of Accounting Chapter 9 Unit 4 Presented by : CA .Sanket Shah MCQ's A debenture holder is an owner of the company A debenture holder can get his money back only on the liquidation of the company A debenture issued at a discount can be redeemed at a premium A debenture holder receives interest only in the event of profits ? ? ? ? Debenture holders are creditors of the co; not owner of the co. In redeemable Debentures : Life is decided at the time of issue. Statement is Correct Interest is compulsory expenditure even in loss. A B D C A real account A nominal account – income A personal account A nominal account – expenditure ? ? ? ? Belongs to shareholder’s so personal a/c A B D C At maturity, debenture holders get back their money as per the terms and conditions of redemption Debentures can be forfeited for non payment of call money In company's balance sheet, debentures are shown under secured loans Interest on debentures is charged against profits ? ? ? ? Debentures cannot be forfeited if call money not paid. Co has to return allotment money in that case. B D C ARead More
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FAQs on MCQ - Issue of Debentures - Principles and Practice of Accounting - CA Foundation
| 1. What are debentures? |  |
Ans. Debentures are long-term debt instruments issued by companies to raise funds from the public. They are similar to bonds and represent a loan agreement between the company (issuer) and the debenture holders. The company promises to repay the principal amount along with interest at a specified rate and duration.
| 2. What is the difference between secured and unsecured debentures? | |
Ans. Secured debentures are backed by specific assets of the company, which act as collateral for the debenture holders. In case of default by the company, the debenture holders have a claim on those assets. On the other hand, unsecured debentures are not backed by any specific assets and rely solely on the creditworthiness of the company for repayment.
| 3. How are debentures different from shares? | |
Ans. Debentures represent borrowed funds and are considered as a liability for the company. On the other hand, shares represent ownership in the company and are considered as equity. Debenture holders receive fixed interest payments and have a claim on the company's assets in case of default, while shareholders receive dividends and have voting rights in the company.
| 4. What is the process of issuing debentures? | |
Ans. The process of issuing debentures involves the following steps:
1. Obtaining necessary approvals from the board of directors and shareholders.
2. Drafting a prospectus or offer document providing details of the debentures.
3. Appointing a debenture trustee to protect the interests of the debenture holders.
4. Marketing and advertising the debentures to potential investors.
5. Accepting applications and allotting debentures based on the subscription received.
6. Listing the debentures on a stock exchange, if required.
| 5. What are the advantages and disadvantages of investing in debentures? | |
Ans. Some advantages of investing in debentures include regular fixed income, lower risk compared to equity investments, and priority in repayment in case of default. However, debentures also have some disadvantages such as lower returns compared to equity investments, lack of voting rights, and the risk of default by the company issuing the debentures. It is important for investors to carefully assess the creditworthiness of the company before investing in debentures.
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