Banking Financial Awareness · Commerce Accountancy

Credit, Debt, and Finance

1,435 Questions

This topic covers essential concepts of credit, debt, and finance including bankruptcy, debt recovery, and financial acts. These questions are frequently asked in banking and IBPS exams. Test your knowledge of financial terminology and loan classifications.

Debt recovery actsBankruptcy filing proceduresFinancial classificationsMedium term financeCredit loss management

Credit, Debt, and Finance Questions

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following statements is true?

  1. A debenture holder is an owner of the company.

  2. A debenture holder can get his money back only on the liquidation of the company.

  3. A debenture issued at a discount can be redeemed at a premium.

  4. A debenture holder receives interest only in the event of profits.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Debentures are debt instruments, and there is no legal restriction preventing a company from issuing them at a discount while redeeming them at a premium. The other options are incorrect because debenture holders are creditors, not owners, and they are entitled to interest regardless of profit.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following statements is false?

  1. Debentures can be issued for cash or consideration other than cash or as collateral security

  2. Debentures can not be forfeited for non-payment of call money.

  3. A company can buy its own debentures.

  4. A debentures issued at a discount can be redeemed at a premium.
Reveal answer Fill a bubble to check yourself
B Correct answer
Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following is false?

  1. A company can issue bearer debentures.

  2. A company can issue convertible debentures.

  3. A company can issue redeemable debentures.

  4. A company can issue debentures with voting rights.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures are debt instruments and do not carry voting rights, which are reserved for equity shareholders. The other options are valid types of debentures.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Debentures can be redeemed by :

  1. Purchase of own debentures in the open market

  2. Converting them into new class of debentures

  3. Converting them into shares

  4. Any of the methods mentioned in (A), (B) and (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be redeemed through various methods, including open market purchases, conversion into new debentures, or conversion into equity shares.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

'Premium on Redemption of Debentures Account' is a:

  1. Personal Account

  2. Real Account

  3. Nominal Account

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

Premium on redemption of debentures is a personal account and it is a liability of the company which is payable on redemption.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Non-convertible debentures are ________________.

  1. debt instruments which acquire equity status at the issuers option

  2. debt instruments which retain their debt character and cannot acquire equity status

  3. debt instruments which acquire equity status with the permission of Registrar of Companies

  4. debt instruments which acquire equity status on maturity
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Non-convertible debentures are debt instruments that do not have the option to be converted into equity shares; they remain debt until maturity.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following is incorrect with respect of debentures?

  1. They can be issued for cash

  2. They can be issued for consideration other than cash

  3. They can be issued as collateral security

  4. They can be issued in lieu of dividends
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Dividends are distributions of profit to shareholders. Debentures are debt, and interest is paid on them; they cannot be issued in lieu of dividends.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following is false?

  1. Equity is owners' stake and the debentures is a debt

  2. Rate of interest on debentures is fixed

  3. Debenture holders get preferential treatment over the equity holders at the time of liquidation

  4. Interest on debentures is an appropriation of profits
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on debentures is a charge against profits, not an appropriation of profits. An appropriation of profits is a distribution of earnings, whereas interest is an expense incurred to earn those profits.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following statement correctly describes debentures?

  1. Income bonds that require interest payments only when earnings permit.

  2. Income bonds that are not require interest payments when earnings permit.

  3. Subordinated debt and rank behind convertible bonds.

  4. A form of lease financing similar to equipment trust certificates.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Debentures are debt instruments issued by companies. They are generally unsecured or secured by assets, and they are considered liabilities that rank ahead of equity. Option C correctly identifies that debentures are a form of debt, though the specific ranking can vary by contract.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following statement correctly describes debentures?

  1. Income bonds that require interest payments only when earnings permit

  2. Income bonds that are not require interest payments only when earnings permit

  3. Subordinated debt and rank behind convertible bonds

  4. A form of lease financing similar to equipment trust certificates
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Debentures are debt instruments representing a loan to a company. They are distinct from income bonds, which only pay interest if earnings are sufficient. Option C is the standard textbook definition provided in this context.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Debenture is -

  1. a written instrument acknowledging a debt written by its holder

  2. an oral acknowledgement of debt by a company

  3. a written instrument acknowledging a debt written by its company

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

Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Debentures can be ________.
I. Mortgage Debentures or Simple Debentures.
II. Registered Debentures or Bearer Debentures.
III. Redeemable Debentures or Non- Convertible Debentures.
IV. Convertible Debentures or Non- Convertible Debentures.

  1. Both (I) and (II) above

  2. Both (I) and (III) above

  3. Both (II) and (III) above

  4. All of (I), (II), (III) and (IV) above.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be classified by security (mortgage vs. simple), ownership (registered vs. bearer), and convertibility (convertible vs. non-convertible). All listed categories are valid ways to classify debentures.