Commerce Accountancy

Accounting Principles and Practice

1,227 Questions

Accounting principles and practice questions cover core concepts like assets, depreciation, financial statements, and ledger adjustments. These topics are essential for commerce students preparing for academic and competitive exams. Regular practice ensures a strong grasp of standard accounting standards and business operations.

Asset depreciationFinancial statement adjustmentsAccounting standardsSingle entry systemCapital expenditure

Accounting Principles and Practice Questions

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

The debentures which are duly recorded in the register of debenture holders maintained by the company and which can be transferred only through a regular instrument of transfer are called as _________ debentures.

  1. Secured

  2. Unsecured

  3. Convertible

  4. Registered
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Registered debentures are duly recorded in the register of debenture holders. It is maintained by the company and which can be transferred only through a regular instrument of transfer.

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

__________ debentures are those debentures that can be converted into equity shares after the expiry of a specified period.

  1. Secured

  2. Unsecured

  3. Registered

  4. Convertible
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures are an important instrument to raise long term debt capital. They are issued by a company and bear a fixed rate of interest and the company promises to pay the debt at a future date. The debentures that can be converted into equity shares within a specified period of time are known as convertible debentures.

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

As fixed charge instruments, debentures put a _________ burden on the earnings of a company.

  1. Permanent

  2. Temporary

  3. Higher

  4. Lower
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Debentures bear a fixed rate of interest to be paid at a future date to the the creditors. As fixed charge instruments, debentures put a permanent burden of interest payments on the earnings of a company.

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

If the value of debentures allotted to vendors for acquiring some assets as payment for purchase consideration is more than the agreed purchase price, the difference is credited to __________.

  1. Capital reserve account

  2. Debenture suspense account

  3. Goodwill account

  4. Profit & loss account
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Goodwill Account-

  • Sometimes a company purchases some assets and liabilities from the vendor and purchase consideration (amount of payment) is determined in advance. 
  • Payment is made by issuing debentures by the company; it is called issue of debentures for consideration other than cash. Such issue of debentures may be at par, discount or premium.
  •  The entry for acquisition of assets & liabilities and issuance of debenture is shown as above:

         a.   Assets A/c                     Dr.

                  To Liabilities A/c

                  To Vendor’s A/c

             (Purchase of assets & liabilities from vendor)

         b.  Vendor’s A/c                 Dr.

                   To Debentures A/

              (Issue of debentures to vendors)

  •  In such cases, if purchase consideration is more than assets & liabilities acquired then the difference is goodwill and amount of difference to “Goodwill A/c” which is calculated as below:

     Goodwill= Purchase consideration- Assets acquired- Liabilities taken over

  • The entry of goodwill will be as shown below:
           Assets A/c                     Dr.

           Goodwill A/c                 Dr.

                     To Liabilities A/c

                     To Vendor’s A/c

         (Purchase of assets & liabilities from vendor)

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

If the debentures are issued at a price higher than the nominal value of the debentures, the premium should be credited to ______________.

  1. General Reserve

  2. Securities Premium Account

  3. Reserve Capital

  4. Profit & Loss Account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Securities Premium Account-

·  When debenture is issued at a price more than its face value, they are said to be issued at a premium.

·  For example: if a debenture of ₹10 is issued at ₹12; ₹2 will be called as premium on that debenture.

·  The amount of premium on debenture is a capital profit so it is credited to a separate account called “Securities Premium Account” or “Securities Premium Reserve” and it is shown in Balance sheet under the head “Reserved and Surplus”.

· Though there is no legal restriction on issue of debenture at premium but there is restriction on utilization of securities premium a/c.

·  Utilization of securities premium a/c is restricted to following purposes:

       a.  Writing off preliminary expenses

       b.  Writing off expenses, discount allowed on issue of shares/debentures or commission paid on issue of debentures/shares (underwriting commission)

       c.  Issue of fully paid bonus shares to equity shareholders

       d.  Providing for payment of premium payable on redemption of preference shares or debenture

       e.  For buy back of its own shares.

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

If face value of debentures is more than issue price, then the debentures are said to be issued at a _________.

  1. Premium

  2. Discount

  3. Par

  4. None of above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Issue of Debentures at Discount:

When debentures are issued by company at a price less than its nominal value (face value) it is said to be issued at discount. It is important to note that the Companies Act has not put any restriction on the maximum limit of discount. For example, if a debenture of Rs. 1,000 is offered to public at Rs. 950, it is issue at a discount. Here Rs. 50 on each debenture is loss to the company. As a principle of equity, it is desirable to write off this loss.

Disclosure of Discount in Balance Sheet:
It is a capital loss and until it is written off-completely, it is shown on the asset side of balance sheet, under the heading ‘Miscellaneous Expenditure’, as a fictitious asset. Discount on issue of debentures account is supposed to be allowed on allotment, unless, otherwise, mentioned.

Accounting Treatment:
The requisite entries to be passed are as follows:
(a) When allotment money becomes due

Debenture allotment a/c
Discount on issue of debenture a/c
To Debentures a/c

(b) When allotment money is received
Bank a/c
To Debenture allotment a/c

(c) To Write off Discount
Profit & Loss A/c
To Discount on Issue of Debenture A/c.
Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

Discount on issue of debentures is ____________.

  1. Revenue loss

  2. Capital profits

  3. Capital loss

  4. Capital receipt
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
 Capital Loss :-

A capital loss is the loss incurred when a capital asset, such as an investment or real estate, decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price. 
Capital losses are generally tax deductible, but only when they are realized. That is, they only become deductible when the asset is actually sold (unless the stock is legally deemed worthless). Until that point, any losses are considered unrealized and are not deductible. 
The IRS considers nearly every asset owned by individuals and companies as capital assets and thus subject to capital gains taxes and capital loss deductions.
Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to____________.

  1. Profit and loss A/c

  2. General reserve A/c

  3. Debenture A/c

  4. Cash A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to General Reserve account. It is the amount which is kept separately out of redeemed amount from debentures, that is why it is transferred to general reserve account.

Multiple choice organization of commerce and management business risks and insurance meaning, importance and principles of insurance features and principles of insurance meaning and definition of insurance

Insurance and garage rent is _______.

  1. fixed charges

  2. maintenance charges

  3. operating charges

  4. running charges
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Insurance and garage rent are costs that do not change with the distance traveled or usage of the vehicle, making them fixed charges.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

After redemption of debentures, the balance of debenture sinking fund is transferred to:

  1. Debenture account

  2. General reserve account

  3. Profit & loss account

  4. Capital reserve account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Once debentures are redeemed, the sinking fund is no longer needed, so the balance is transferred to the General Reserve account.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

___________ is created to provide for not only depreciation on the assets but also to provide sufficient funds for replacement of the assets at the end of its life.

  1. Plant and Machinery replacement fund.

  2. Sinking fund

  3. Dividend equalization reserve

  4. Debenture redemption reserve
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A sinking fund method is a technique for depreciating an asset in bookkeeping records while generating money to purchase a replacement for the assets when it reaches the end of its useful life. 

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

The balance of the debentures sinking fund after redemption of debentures is transferred to ___________________.

  1. Debentures Account

  2. Profit and Loss Account

  3. General Reserve Account

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Similar to previous questions, the balance of the sinking fund after the redemption of debentures is no longer required for its specific purpose and is transferred to the General Reserve.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Interest is credited to profit and loss account in ________________.

  1. annuity method

  2. sinking fund method

  3. insurance policy method

  4. all of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In the sinking fund method, interest earned on the sinking fund investments is credited to the Sinking Fund account, but the interest on the debentures themselves is an expense charged to the Profit and Loss account.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Profit on sale of sinking fund investment is credited to ______________.

  1. General reserve

  2. Capital reserve

  3. Sinking fund

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Profit or loss on sale of investments is transferred to sinking fund. After the redemption of all debentures, balance left in sinking fund is transferred to general reserve but the portion of the profit on sale of sinking fund investment is preferably transferred to capital reserve.