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

Questions Related to company accounts part - 2 (accounting for debentures)

Debenture contains provisions as regards -

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

  1. the repayment of principal only

  2. the payment of interest at a fixed rate only

  3. the payment of interest at a fluctuating rate only

  4. the repayment of principal and the payment of interest at a fixed rate.

Show answer
Correct Option: D
Explanation:

Debenture is a written instrument acknowledging a debt to the Company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.

In Balance Sheet of a Company, Interest accrued and due on debentures appears under the head -

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

  1. Share Capital

  2. Reserves & Surplus

  3. Current Liabilities

  4. Non-Current Liabilities

Show answer
Correct Option: C

Who is not eligible to be appointed as Debenture Trustee:

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

  1. A Scheduled Bank

  2. A Public Financial Institution

  3. An Insurance Company

  4. A partnership firm carrying on banking Business

Show answer
Correct Option: D

Debenture Trustess are to be appointed in case of issue of:

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

  1. All Debentures

  2. Debentures with maturity of more than $18$ months

  3. Debentures with maturity of lessthan $18$ months

  4. Convertible Debentures

Show answer
Correct Option: B
Explanation:

No Public Issue/Rights Issue of Debentures shall be made by a company unless it has appointed one or more Debenture Trustees for such debentures whereas under SEBI guidelines, appointment of Debenture Trustees is compulsory only in case of debentures with maturity of 18 months or more.

Consider the following items.
1. Debentures  2. Prepaid rent
3. Accrued interest   4. Bank overdraft
Liabilities would include

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

  1. 2, 3 and 4

  2. 1, 2 and 3

  3. 1 and 4

  4. 1, 2, 3 and 4

Show answer
Correct Option: C

Debentures issued as collateral security for Rs 10,000 will be debited to ________________.

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

  1. Debentures suspense A/c

  2. Bank A/c

  3. Debentures A/c

  4. None of the above

Show answer
Correct Option: A

First debentures and second debentures would denote a classification of debentures on the basis of ______________.

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

  1. Security

  2. Redemption

  3. Record

  4. Priority

Show answer
Correct Option: D

Advantage of debt financing is:

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

  1. Interest is tax-deductible

  2. It reduces WACC

  3. Does not dilute owners control

  4. All of the above

Show answer
Correct Option: D
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.

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

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

  1. Equity Share Capital

  2. Preference Share Capital

  3. Debentures

  4. Both A and B

Show answer
Correct Option: C
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. 

___________ are those debentures where the debenture holder have option to convert into equity.

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

  1. Optional debentures

  2. Flexible debentures

  3. Convertible debentures

  4. Non-convertible debentures

Show answer
Correct Option: C