Tag: elements of accounts

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Questions Related to elements of accounts

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Accounting entry for making the provision for the redemption of debentures is:

  1. Profit and loss accountSinking fund account  Dr.  Cr.
  2. Profit and loss appropriation accountSinking fund account  Dr.  Cr.
  3. Profit and loss adjustment accountSinking fund account  Dr.  Cr.
  4. Debentures accountSinking fund account  Dr.  Cr.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The provision for the redemption of debentures via a sinking fund involves appropriating profits. The Profit and Loss Appropriation account is debited to set aside funds, and the Sinking Fund account is credited.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

When all the debentures are redeemed the balance left in the debentures sinking fund account is transferred to:

  1. General Reserve account

  2. Sinking Fund Investment account

  3. Debenture account

  4. Capital Redemption Reserve account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Once the debentures are redeemed, the purpose of the sinking fund is fulfilled. The remaining balance in the Sinking Fund account is a free reserve and is transferred to the General Reserve.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

____________ is created to provide fund for redemption of debentures as and when they become due for redemption.

  1. Investment fluctuation reserve.

  2. Sinking fund

  3. Dividend equalization reserve

  4. Debenture redemption reserve
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debenture Redemption Reserve (DRR) is a statutory requirement created by companies to ensure funds are available for the redemption of debentures.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

___________ is created to provide for not only depreciation on the assets but also to provide sufficient funds for replacement of the assets at the end of its life.

  1. Plant and Machinery replacement fund.

  2. Sinking fund

  3. Dividend equalization reserve

  4. Debenture redemption reserve
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A sinking fund method is a technique for depreciating an asset in bookkeeping records while generating money to purchase a replacement for the assets when it reaches the end of its useful life. 

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

The balance of the debentures sinking fund after redemption of debentures is transferred to ___________________.

  1. Debentures Account

  2. Profit and Loss Account

  3. General Reserve Account

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

Similar to previous questions, the balance of the sinking fund after the redemption of debentures is no longer required for its specific purpose and is transferred to the General Reserve.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

When debenture sinking fund is created ___________________.

  1. Both the accounts involved belong to current category

  2. Both the accounts involved belong to non-current category

  3. One is current item and another is non-current category

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

A sinking fund involves setting aside assets (investments) and creating a reserve (liability/equity). Both the investment (non-current asset) and the sinking fund reserve (non-current liability/equity) are non-current items.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Which is not the salient feature of sinking fund method?

  1. Interest is an integral part

  2. Amount released is affected by fluctuations in interest rate

  3. Investment in securities

  4. Premium is paid in advance at the beginning of year
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The sinking fund method involves periodic contributions to a fund that earns interest. It does not involve paying a premium in advance at the beginning of the year.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

A check returned by bank marked "NSF" means that:

  1. Bank can't verify your identify

  2. There are not sufficient funds in your account

  3. Check has been forged

  4. Check can't be cashed being illegal
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

NSF stands for Not Sufficient Funds. It indicates that the account holder does not have enough money in their bank account to cover the amount of the check.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

The following is common in sinking fund method:

  1. The amount received at the end of the life of an asset is fixed

  2. The amount received at the end of the life of an asset is not fixed

  3. The amount received at the beginning of the life of an asset is fixed

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

In the sinking fund method, the final amount depends on the interest earned on the investments, which can fluctuate, making the final value variable rather than fixed.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Under redemption by _________, debentures can also be redeemed by converting them into shares or new debentures.

  1. purchase

  2. conversion

  3. payment

  4. payment in lump sum
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Redemption by conversion allows debenture holders to exchange their debentures for shares or new debentures of the company.