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

From the point of view of security, the debentures are classified as -

  1. Secured and unsecured Debentures

  2. Redeemable Debentures and Irredeemable Debentures

  3. Convertible Debentures and Non-convertible Debentures

  4. Registered Debentures and Bearer Debentures
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Debentures can be secured in nature, it may be unsecured in nature. A secured debenture is secured by the charge on some asset or set of assets which is known as secured or mortgage debenture and another when it is issued solely on the credibility of the issuer is known as the naked or unsecured debenture. 

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 contains provisions as regards -

  1. the repayment of principal only

  2. the payment of interest at a fixed rate only

  3. the payment of interest at a fluctuating rate only

  4. the repayment of principal and the payment of interest at a fixed rate.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debenture is a written instrument acknowledging a debt to 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

Consider the following items.
1. Debentures  2. Prepaid rent
3. Accrued interest   4. Bank overdraft
Liabilities would include

  1. 2, 3 and 4

  2. 1, 2 and 3

  3. 1 and 4

  4. 1, 2, 3 and 4
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Liabilities include debentures (debt obligations) and bank overdraft (short-term borrowing). Prepaid rent is a prepaid expense (current asset), not a liability. Accrued interest can be either an asset (interest receivable) or liability (interest payable), but without context, we assume it's interest receivable. Therefore, only debentures and bank overdraft are clearly liabilities.

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 issued as collateral security for Rs 10,000 will be debited to ________________.

  1. Debentures suspense A/c

  2. Bank A/c

  3. Debentures A/c

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

When debentures are issued as collateral security, the entry is made in a 'Debenture Suspense Account' to reflect the contingent nature of the liability until the loan is defaulted or repaid.

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

First debentures and second debentures would denote a classification of debentures on the basis of ______________.

  1. Security

  2. Redemption

  3. Record

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

The classification into first and second debentures refers to the order of repayment or the priority of claims against the company's assets in the event of liquidation.

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

Advantage of debt financing is:

  1. Interest is tax-deductible

  2. It reduces WACC

  3. Does not dilute owners control

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Advantages of Debt Financing over equity are:

1) Tax advantage: The amount you pay in interest is tax deductible.
2) Retains Ownership- With debt financing you don't have togive out a stake in your company.
3) Reduces WACC- The cost of debt is the interest rate applied on loans borrowed from bank and Non-banking financial institutions. A company can reduce its WACC by cutting debt financing costs.

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

___________ are those debentures where the debenture holder have option to convert into equity.

  1. Optional debentures

  2. Flexible debentures

  3. Convertible debentures

  4. Non-convertible debentures
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Convertible debentures provide the holder with the right to convert their debt instrument into equity shares of the company at a predetermined price or ratio.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

If a 2 - year redeemable bond is purchased and held till maturity , the rate of return earned is called ______________.

  1. Coupon rate

  2. Required rate of return

  3. Yield to maturity

  4. Current yield

  5. Either (B) or (D) above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Yield to maturity (YTM) is the total anticipated return on a bond if it is held until it matures. It accounts for all coupon payments and the difference between the purchase price and the face value.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following is false with respect to debentures?

  1. These can be issued for cash

  2. These can be issued for consideration other than cash

  3. These can be issued as collateral security

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

Debentures are debt instruments and represent a loan to the company. They cannot be issued in lieu of dividends, as dividends are distributions of profit to shareholders.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following is/are true with respect to debentures?

  1. They can be issued for cash

  2. They can be issued for consideration other than cash

  3. These can be issued as collateral security

  4. Both (a) and (b) above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be issued for cash or for consideration other than cash (like purchasing assets). They can also be issued as collateral security for loans.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

When debentures are issued as collateral security, the final entry for recording the transaction in the books is ______.

  1. Credit Debentures A/c and debit Cash A/c

  2. Debit Debentures Suspense A/c and credit Cash A/c

  3. Debit Debentures Suspense A/c and credit Debentures A/c

  4. Debit Cash A/c and credit the loan A/c for which security is given
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When debentures are issued as collateral security, the primary entry is recording the loan taken. The issuance of debentures is often recorded via a memorandum entry or by debiting Debenture Suspense Account, but the actual cash transaction is the loan itself.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

What is the journal entry for issuing debentures as collateral security?

  1. CashDebentures Dr. Cr.
  2. CashDebentures Suspense Dr. Cr.
  3. Debentures SuspenseDebenture Dr. Cr.
  4. LoanDebentures Dr. Cr.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The standard journal entry for issuing debentures as collateral security is to debit Debenture Suspense Account and credit the Debentures Account.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

On issue of Debentures, Account to be credited is?

  1. Debenture Capital

  2. Debenture

  3. Loan

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

When debentures are issued, the Debentures Account is credited to reflect the liability created.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

When debentures are issued as collateral security, no amount is received for debentures.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When loan is taken from Bank or Financial Institution, debentures may be issued as collateral security. Any cash is not received against these debenture. On default of repayment of loan, loan may be converted into debentures by Bank/Financial Institution.