Tag: book keeping and accountancy

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Questions Related to book keeping and accountancy

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

Tax-rate is relevant and important for calculation of specific cost of capital of ____________.

  1. Equity Share Capital

  2. Preference S<span>hare Capital</span>

  3. Debentures

  4. Both A and B
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In case of debenture, interest payable is the cost of capital. Interest on debenture is tax deducible and charged to profit & loss account as an expense. It reduces the tax liability of the business. 

Tax rate is relevant and important for calculation of cost of capital for 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

___________ 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 part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Debenture holders are like ___________ of the company.

  1. owners

  2. debtors

  3. creditors

  4. promoters
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Debenture holders lend money to the company, making them creditors. They are entitled to interest payments, unlike shareholders who are owners and entitled to 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

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 can be utilized for redemption of preference shares?

  1. The proceeds of fresh issue of debentures

  2. The proceeds of issue of fixed deposits

  3. The sale proceeds of investments

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

Preference shares can be redeemed out of the proceeds of a fresh issue of shares or debentures made for the purpose of redemption. Fixed deposits and sale of investments are not standard sources for redemption under the Companies Act.

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 Securities Premium amount may be utilised by a company for

  1. Writing off any loss on sale of fixed asset

  2. Writing off any loss of revenue nature

  3. writing off the expenses/ discount on the issue of debentures

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

According to the Companies Act, the Securities Premium account can be used for specific purposes, including writing off the expenses or commission paid or discount allowed on any issue of securities or 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

In case of an issue of a debenture of Rs$100$ at Rs$100$ but redeemable at Rs$106$, Rs$6$ is to be:

  1. Debited to Debenture Redemption Premium Account

  2. Credited to Loss on Issue of Debentures Account

  3. Debited to Loss on Issue of Debentures Account

  4. Debited to Discount on Issue of Debentures Account
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When debentures are issued at par but redeemable at a premium, the premium payable on redemption is treated as a loss on issue. This loss is debited to the Loss on Issue of 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

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.