Tag: company accounts part - 2 (accounting for debentures)

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Questions Related to company accounts part - 2 (accounting for 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.

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 received on Issue of Debentures is?

  1. Capital profit

  2. Revenue profit

  3. Both A and B

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

Premium received on the issue of debentures is a capital receipt, as it is not derived from the company's normal trading operations. Therefore, it is a capital profit.

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

A company issued 1000, 12% debentures of Rs. 100 at par redeemable at 10% premium. 12% stands for ______.

  1. rate of dividend

  2. rate of tax

  3. rate of interest

  4. rate of TDS
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The prefix (e.g., 12%) before the word 'debentures' always denotes the fixed rate of interest payable on the face value of 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

Premium received on issue of Debenture is shown in ____________.

  1. Profit and Loss A/c

  2. Balance Sheet

  3. Contingent Assets

  4. Notes to Accounts
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Premium received on issue of debentures is capital profit, therefore, this will appear in the liabilities side of the Balance Sheet under the head 'Reserve and Surplus'.

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 false?

  1. Equity is owner's estate and the debenture is a debt

  2. Rate of interest on debentures is fixed

  3. Debenture holders get preferential treatment over the equity holders at the time of liquidation

  4. Interest on debentures is an appropriation of profits
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on debentures is a charge against profit, not an appropriation. Appropriations are distributions of profit (like dividends), whereas interest is an expense that must be paid regardless of profit.

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

A company issues $14\%$ debentures of Rs. $10,00,000$ at a discount of $10\%$. The discount allowed will be treated in the account books as.

  1. Capital expenditure

  2. Revenue expenditure

  3. Deferred revenue expenditure

  4. Capital loss
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Discount on issue of debentures is a capital loss because it relates to the cost of raising long-term capital rather than an operating expense.

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 debentures is?

  1. An appropriation of profits of the company

  2. A charge against profit of the company

  3. Transferred to sinking fund investment account

  4. Transferred to general reserve
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest on debentures is a mandatory payment to creditors, making it a charge against profits, which must be deducted to arrive at the net profit.

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

As per the Companies Act, "Interest accrued but not due on debentures" should be shown.

  1. Under Debentures

  2. As Current Liabilities

  3. As Miscellaneous Exps.

  4. As a Current Asset.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest accrued but not due is a liability that the company owes to debenture holders, and since it is expected to be paid within the next accounting cycle, it is classified as a current liability.

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 discount. Such discount ____________.

  1. may be written off against revenue profits

  2. may be written off against capital profits

  3. Both A & B

  4. shown on debit side of balance sheet
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The discount on the issue of debentures is a capital loss and can be written off against either capital profits or revenue profits 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

In debenture account _________ is to be mentioned.

  1. Name of the debenture

  2. Rate of interest

  3. Date of issue of debenture

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The name of the debenture account typically includes the rate of interest to distinguish it from other debentures issued by the company.