Tag: non-institutional sources - long-term

Questions Related to non-institutional sources - long-term

Debentures ______________ forfeited for non-payment of call moneys.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Can be

  2. Cannot be

  3. Both (A) & (B)

  4. None of above

Show answer
Correct Option: B
Explanation:
Generally total face value of debenture is demanded by company in installments I.e. Debenture application, Debenture allotment and Debentures calls accounts. It is usual that some of the debenture-holders fail to pay the amount of different installments when these are demanded by company. Such unpaid calls (installments) are called ‘Calls in arrears’. Under the provisions of Companies Act, 1956 debentures cannot be forfeited by company.

Because under section 122 of the Companies Act 1956 a contract with a company to take up and pay for any debenture may be enforced by a decree for specific performance. For the realisation of calls in arrears on debentures the company can only file a suit in the court. Company can charge interest on calls-in-arrears as provided in prospectus.

Sometimes, certain debenture-holders pay money against those calls also which have not yet en demanded by company. In such cases the amount received is credited to calls in advance account. If provided in prospectus, the company pays interest on this amount to debenture-holders at a specified rate. Interest is always calculated for the period, the advance has been received.

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to____________.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Profit and loss A/c

  2. General reserve A/c

  3. Debenture A/c

  4. Cash A/c

Show answer
Correct Option: B
Explanation:

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to General Reserve account. It is the amount which is kept separately out of redeemed amount from debentures, that is why it is transferred to general reserve account.

Debentures redeemable after 10 years of issue are shown as___________.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Long-term borrowings

  2. Other long-term liabilities

  3. Short-term borrowings

  4. Other short-term liabilities

Show answer
Correct Option: A
Explanation:

Debentures redeemable after 10 years of issue are shown as long-term borrowings since debenture holders invest for a long period of time. Debentures refer to the liabilities of the company that will not become due within one year.

Arpana Pvt Ltd provide following information:
Sales = 10,00,000
Variable cost = 7,00,000
Fixed cost = 2,00,000
Debentures at $10\%$ = 5,00,000
What is the operating leverage of the company? 

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. 2

  2. 3

  3. 4

  4. 5

Show answer
Correct Option: B
Explanation:

Operating leverage = $\frac{Contribution}{EBIT}$
=  $\frac{Rs.3,00,000}{Rs.1,00,000}$
= 3

Debentures are preferred by investors who want _______ income at __________ risk.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. fluctuating, lesser

  2. fixed, lesser

  3. fixed, higher

  4. fluctuating, higher

Show answer
Correct Option: B
Explanation:
The difference between the face value of the debenture and its purchase price is the return to the investor. Hence it is preferred by investors who want fixed income at lesser risk. There is a greater risk when the earnings of the company fluctuate.

Public issue of debentures requires that the issue be rated by a credit rating agency like _____.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. SBI

  2. RBI

  3. SEBI

  4. CRISIL

Show answer
Correct Option: D
Explanation:

Public issue of debentures requires that the issue be rated by a credit rating agency like CRISIL. CRISIL is a global company which mainly provdes ratings to the companies.

_______ issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Interest Certificate

  2. Share Certificate

  3. Debenture

  4. Demat Certificate

Show answer
Correct Option: C
Explanation:

Debenture issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date. It is a long term security. Fixed interest is earned by issuing the debentures.

Mahindra and Mahindra was the first company in India to issue convertible Zero Interest Debentures in January 1990.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Mahindra and Mahindra was the first company in India to issue convertible Zero Interest Debentures in January 1990- this is a true statement. Convertible debentures earns no interests. Mahindra and Mahindra is an MNC of India which deals with car manufacturing.

Debenture holders are termed as __________ of the company.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. debtors

  2. creditors

  3. traders

  4. consumers

Show answer
Correct Option: B
Explanation:
 The debenture issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date. Debenture holders are, therefore,termed as creditors of the company.

Debentures are an important instrument for raising _______ term debt capital.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. short

  2. long

  3. medium

  4. none of the above

Show answer
Correct Option: B
Explanation:

Debentures are an important instrument for raising long term debt capital. a debenture issued by a company represents that the company has borrowed some amount of capital and the company promises to return them on a fixed rate of interest.