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 accounting procedures - rules of debit and credit meaning, advantages and limitations of journals understand the classification of accounts introduction to books of prime entry

If cash discount is offered to customers, then which of the following would increase?

  1. Sales

  2. Debtors

  3. Debt collection period

  4. All of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
A cash discount is allowed by the organization to the customers to get the collection fast against the credit sales. Customer also do the trade off between the discount and the cost of funds. Offering cash discount may lead to increase in sales.
Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

Interest on advance money provided by the Partner can be paid from ____________.

  1. profits

  2. out of capital

  3. both (a) and (b)

  4. from the money provided by Central Government
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest on a partner's loan is a charge against profits, meaning it must be paid even if the firm incurs a loss, and can be paid out of capital if necessary.

Multiple choice book keeping and accountancy partnership accounts (preliminary) adjustment of distributable profits final accounts of partnership firms profit-loss appropriation account

At the time of dissolution which payment will be made in priority ?

  1. Capital to partners

  2. Loan provided by partner

  3. Fluctuating capital account

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

Payment of partner's loan is made before payment of capital because capitals are paid off only if any balance is left after payment of all the liabilities. loan provided by partner is a liability for the firm. A separate Partner's loan account is prepared for payment. Following entry is passed on payment :
Partner's loan A/c Dr.
   To Bank/Cash A/c 

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

The issue of debentures less than the face value is called_______.

  1. at par

  2. at premium

  3. at discount

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

When debentures are issued by the company at a price less than its nominal value (face value), it is said to be issued at discount.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue 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

It is standard practice for companies to issue debentures at a discount while agreeing to redeem them at a premium, creating a loss on issue.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Which of the following statements is false?

  1. Debenture is a form of public borrowing

  2. It is customary to prefix debentures with the agreed rate of interest

  3. Debenture interest is a charge against profits

  4. The issue price and redemption value of debentures cannot differ.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The issue price and redemption value frequently differ; for example, a company may issue at a discount and redeem at par, or issue at par and redeem at a premium.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

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

  1. The carrying amount of debentures get reduced each year at a rate of $20\%$

  2. Issue price and the carrying amount of debenture are equal

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

  4. The carrying amount of debentures remain the same.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The carrying amount of a debenture refers to its face value (the liability amount). While the issue price is lower due to the discount, the liability recorded in the books remains the face value.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Interest on Debentures is calculated on -

  1. Its face value

  2. Its issue price

  3. Its book value

  4. Its cost price
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The interest is calculated on the face value of the debentures. This interest amount is paid periodically, generally yearly or half-yearly. The interest is a charge against the profit of the company.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

When debentures are issued at par but are redeemable at premium, the entry is:

  1. Bank Account DebenturesPremium on redemption of debentures Dr. Cr.Cr.
  2. Bank Account DebenturesLoss on the issue of debenture Dr. Cr. Cr.
  3. Bank Account Loss on the issue of debenture DebenturePremium on redemption of debentures Dr. Cr. Cr.Cr.

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

When issued at par but redeemed at a premium, the premium on redemption is a loss. The entry debits Bank and Loss on Issue, and credits Debentures and Premium on Redemption.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

When debentures are issued at a discount but are redeemable at a premium the entry is:

  1. Bank Account Discount on Debentures accountDebentures Dr. Cr. Cr.
  2. Bank Account Discount on Debentures accountDebenturesPremium on redemption of debentures Dr. Cr. Cr.Cr.
  3. Bank Account Loss on the issue of debenturesDebenturesPremium on redemption of debentures Dr. Cr. Cr.Cr.

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

When issued at a discount and redeemed at a premium, the total loss (discount + premium) is debited to the Loss on Issue of Debentures account. The entry credits Debentures and Premium on Redemption.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Interest payable on debenture is:

  1. an appropriation of profits of the company

  2. a charge against profits of the company

  3. transferred to sinking fund account

  4. transferred to sinking fund interest account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest on debentures is a charge against profits and, therefore, its payment is not subject to the earning of profits.The amount so deducted must be paid to the Central Government on behalf of the debenture-holders.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

When debentures are issued at a discount it is prudent to write off the discount:

  1. in the year of the issue of debentures

  2. within 5 years of the issue of debentures

  3. during the life of debentures

  4. in the year of redemption of debetures
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

To follow the matching principle, the discount on issue should be amortized over the entire period the company benefits from the borrowed funds.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Premium on redemption of debenture is generally provided at the time of __________.

  1. issue of debentures

  2. redemption of debentures

  3. every year

  4. after 10 years
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to the principle of prudence, if a company knows it will have to pay a premium upon redemption, it must provide for that loss at the time of issuing the debentures.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Debentures cannot be redeemed at ___________.

  1. premium

  2. discount

  3. par

  4. more than 10% premium
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debentures are a debt obligation. Redeeming them at a discount would mean paying back less than the face value, which is generally not permitted as it would be unfair to the debenture holders.