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 - 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 debentures are issued as consideration for purchase of any fixed asset, the entry is?

  1. Debit Asset A/c; Credit Vendor A/c

  2. Debit Asset A/c; Credit Bank A/c

  3. Debit Asset A/c; Credit Debentures A/c

  4. Debit Debenture A/c; Credit Asset A/c

  5. Debit Debenture A/c; Credit Vendors A/c
Reveal answer Fill a bubble to check yourself
D Correct answer
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

Debentures can be issued.

  1. For consideration other wise than cash

  2. As collateral security for borrowings from financial institutions

  3. In lieu of dividends

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

Debentures can be issued for consideration other than cash and 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

The underwriting commission in the case of issue of debentures cannot exceed.

  1. $2\%$
  2. $2.5\%$
  3. $3\%$
  4. $5\%$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per the Companies Act, the underwriting commission for debentures is capped at 2.5%.

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 true with regard to $10\%$ Debentures issued at a discount of $20\%$?

  1. The carrying amount of debentures is $80\%$ of face value

  2. Issue price and the carrying amount of debentures will necessarily be equal

  3. At the time of redemption, the debenture holder will be paid the issue price

  4. The carrying amount and the face value of debentures are equal
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The carrying amount of a debenture is its face value, adjusted for any unamortized discount or premium. At the time of issue, the carrying amount is the issue price, but over time, it amortizes back to 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 not a characteristic of Bearer Debentures?

  1. They are treated as loan

  2. Their transfer requires a deed of transfer

  3. They are transferable by mere delivery

  4. The interest on it is paid to the bearer or holder
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Bearer debentures are transferable by mere delivery. They do not require a deed of transfer, which is a characteristic of registered debentures.

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 statements is true?

  1. A debenture holder is 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, not equity, so holders are creditors, not owners. Interest is a fixed charge payable regardless of profits. A debenture can be issued at a discount and redeemed at a premium, which is a standard accounting practice for long-term debt.

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 statements is false?

  1. At maturity, debenture holders get back their money

  2. Debentures can be forfeited for non-payment of call money

  3. In company's balance sheet, debentures are shown under the head Secured Loans

  4. Interest on debentures is charged against profits
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debentures represent a debt obligation and cannot be forfeited for non-payment of call money, unlike shares. Shares can be forfeited because they represent ownership, but debentures are contractual debts.

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 statement is false?

  1. A company can issue convertible debentures

  2. Debentures cannot be secured

  3. A company can issue redeemable debentures

  4. Debentures have no right to participate in profits over and above their fixed interest
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debentures can be secured by a charge on the assets of the company. Therefore, the statement that they cannot be secured is false.

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 true regarding debentures?

  1. They can be issued for cash

  2. They can be issued for a consideration other than cash

  3. They cannot be issued as collateral security

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

Debentures can be issued for cash or for consideration other than cash (such as purchasing assets). Both options A and B are correct, making D the right choice.

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 regarding debentures?

  1. They can be issued to vendors

  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 a distribution of profits to shareholders. Debentures are debt, and interest is paid to debenture holders. Debentures cannot be issued in lieu of dividends.

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 cash A/c and credit the loan A/c for which security is given

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

When debentures are issued as a collateral security there are two treatments in the accounting books. 

One of the methods is where no journal entry is made in the account books at the time of issue of such debentures. Hence, only the entry of loan is to be passed.

Hence, C is the correct option.

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

Debentures of a company can be issued :

  1. For cash

  2. For consideration other than cash

  3. As a collateral security

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

Debentures can be issued for cash, for consideration other than cash (like assets), or as collateral security for a loan. All these methods are valid.

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 as a collateral security, which account is creadited?

  1. Debentures Account

  2. Bank Loan Account

  3. Debenture holdings Account

  4. Debenture Suspense Account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Collateral security means security provided to the lender over and above the prime or principal security. Collateral security is to be realized only when the principal security fails to pay the amount of loan.
Debentures Suspense A/c                          Dr.
To Debentures A/c

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 debentures are secured by a charge -

  1. Debentures which are convertible on or after $18$ months
  2. Non - convertible debentures which are redeemable on or after $18$ months
  3. Debentures which are non - convertible on or after $18$ months

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

If debentures are non-convertible, they are paid at the time of redemption. Debentures which are non-convertible and redeemable after a period of more than 18 months must be secured by creating a charge against the property of the company.

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

The underwriting commission in case of issue of debentures can't exceed _______.

  1. $2\%$
  2. $2.5\%$
  3. $3\%$
  4. $5\%$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the Companies Act, the underwriting commission for debentures is capped at 2.5% of the issue price.