Tag: sources of business finance - 2
Questions Related to sources of business finance - 2
The _______ debentures are those which are paid after the first debentures have been paid back.
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Secured
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Unsecured
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First
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Second
The second debentures are those which are paid after the first debentures have been paid back. Second debenture holders have the secondary charge over the company's assets.
As fixed charge instruments, debentures put a _________ burden on the earnings of a company.
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Permanent
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Temporary
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Higher
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Lower
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.
Debenture holders may receive ____ on their investment.
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interest
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dividend
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bonus
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(B) & (C)
Debentures are issued to the investors from which funds are raised. They are given debenture receipt as a promise of repayment of capital bearing a fixed rate of interest. Hence debenture holders receive interest on their investment.
Which of the following security cannot be forfeited for non-payment of allotment or call money?
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Equity shares
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Preference shares
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Debentures
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Both (A) & (B)
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 __________.
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Capital reserve account
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Debenture suspense account
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Goodwill account
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Profit & loss account
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:
Goodwill A/c Dr.
To Liabilities A/c
To Vendor’s A/c
(Purchase of assets & liabilities from vendor)
Debentures may be issued by a company for ________.
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Cash
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Consideration other than cash
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As a collateral security
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Any of above
In the company's balance sheet, debentures are shown under the head _____________.
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Secured Loans
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Non-Current Liabilities
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Current Liabilities
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Capital Employed
Noncurrent liabilities are those obligations not due for settlement within within one year. These liabilities are separately classified in an entity's balance sheet, away from current liabilities. Examples of noncurrent liabilities are:
Long-term portion of debt payable
Long-term portion of bonds payable
The aggregate amount of noncurrent liabilities is routinely compared to the cash flows of a business, to see if it has the financial resources to fulfill its obligations over the long term. If not, creditors will be less likely to do business with the organization, and investors will not be inclined to invest in it. A factor to be considered in this evaluation is the stability of an organization's cash flows, since stable flows can support a higher debt load with a reduced risk of default.
If the debentures are issued at a price higher than the nominal value of the debentures, the premium should be credited to ______________.
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General Reserve
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Securities Premium Account
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Reserve Capital
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Profit & Loss Account
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.
The company may allot debentures to the vendors for a acquiring some assets as payment for purchase consideration, such issue of debentures to vendors is known as issue of debentures for _______.
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Cash
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Consideration other than cash
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With consideration
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Without consideration
If face value of debentures is more than issue price, then the debentures are said to be issued at a _________.
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Premium
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Discount
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Par
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None of above