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

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Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

An unsecured bond that provides no lien against property as security for bond obligation is classified as _____________.

  1. secured bond

  2. debenture

  3. obligation bond

  4. specific bond
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A debenture is a long-term debt instrument that is not secured by physical assets or collateral, making it an unsecured bond.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Shares and debentures of blue chip companies are ___________ .

  1. Money market investment

  2. Capital market investment

  3. Gilt-edged securities

  4. Any of these depending on certain factors
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Blue chip companies' shares and debentures are traded in the capital market, which deals with long-term securities.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

On 1st April, 2013, Y Ltd. Issued 1000, 12% debentures of Rs. 100 each at a discount of 6%. These debentures are redeemable in five equal annual instalments at the end of each year. What is the amount of discount to be written off in the first year i.e.

  1. Rs. 2000

  2. Rs. 1800

  3. Rs. 1200

  4. Rs. 600
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Total discount = 1000 * 100 * 0.06 = 6000. Since they are redeemed in 5 equal annual installments, the discount is written off proportionally. 6000 / 5 = 1200 per year.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Debentures can be redeemed by :

  1. Purchase of own debentures in the open market

  2. Converting them into new class of debentures

  3. Converting them into shares

  4. Any of the methods mentioned in (A), (B) and (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be redeemed through various methods, including open market purchases, conversion into new debentures, or conversion into equity shares.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

The premium on issue of shares (whether received in cash or in kind) is a:

  1. Revenue receipt

  2. Capital receipt

  3. Neither revenue nor capital receipt

  4. Both revenue and capital receipts
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Premium on the issue of shares is a capital receipt because it is a gain of a capital nature, not arising from the normal course of business operations.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

The formula of earning per share is ___________.

  1. $\dfrac {\text {Market price per equity share}}{\text {Number of shares}}$

  2. $\dfrac {\text {Gross profit}}{\text {Net sales}}\times 100$

  3. $\dfrac {\text {Operating costs}}{\text {Net sales}}\times 100$

  4. $\dfrac {\text {Net profit after tax and preference dividend}}{\text {Number of Equity shares}}$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Earning per share is the portion of a company's profit allocated to each outstanding share of the common stock. It serves as an indicator of the company's profitability. It is calculated by dividing the market price per equity share by no. of shares.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

When business is sold to company, shares and debentures received are distributed in:

  1. The profit sharing ratio

  2. Equal ratio

  3. The ratio of their capitals standing before profit or loss on realization has been transferred

  4. The ratio of their capitals standing after profit or loss on realization has been transferred
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Whatever the company pays as consideration will be credited to the Realisation Account. If expenses are incurred by the firm, the amount will be debited to the Realisation Account. If the creditors are taken over by the company, no further treatment is necessary beyond transferring them to the credit of Realisation Account; but if creditors are to be paid by the firm, the actual amount paid to them will be debited to liability account concerned; the difference between the book figure and the amount actually paid will be transferred to Realisation Account. The profit or’ loss on realisation will be transferred to the capital accounts in the profit-sharing 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

'Premium on Redemption of Debentures Account' is a:

  1. Personal Account

  2. Real Account

  3. Nominal Account

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

Premium on redemption of debentures is a personal account and it is a liability of the company which is payable on redemption.