Tag: meaning and kinds of debentures

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Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Issue of debentures as collateral securities means issue of such debentures as _________.

  1. Subsidiary security

  2. Principal security

  3. In lieu of principal security

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

Issue of Debentures as Collateral. Debentures issued as collateral security is secondary or parallel security for the original loan taken by the company. The lender can realize the collateral security in case borrower fails to make the payment of the original loan.

A Collateral Security is a Subsidiary Security.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Which of the following statement is not true?

  1. Interest on debenture holders is to be paid whether there is profit or loss to the company

  2. There is restriction on utilization of premium on issue of shares

  3. Company can buy back its debentures

  4. Interest on debenture is not shown in Profit and Loss A/c
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on debentures is a charge against profit, meaning it must be paid regardless of profit or loss and is recorded in the Profit and Loss Account as an expense.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

______ are secured by either a fixed charge or a floating charge.

  1. Naked debentures

  2. Unsecured debentures

  3. Mortgaged debentures

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

Mortgaged debentures are secured by a charge on the assets of the company. A fixed charge applies to specific assets, while a floating charge applies to current assets.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Debentures which are not secured by any charge upon any assets of the company are called __________.

  1. secured debenture

  2. naked debenture

  3. bearer debenture

  4. floating debenture
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Naked debentures, also known as unsecured debentures, are those that do not carry any charge or security on the assets of the company.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

_______debentures are those which can be transferred by mere delivery.

  1. Naked

  2. Registered

  3. Bearer

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

Bearer debentures are negotiable instruments that can be transferred by simple delivery, meaning the holder at the time is entitled to the interest and principal.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Debentures can be ____________.
I. Mortgage Debentures or Simple Debentures
II. Registered Debentures or Bearer Debentures
III. Redeemable Debentures or Irredeemable Debentures
IV. Convertible Debentures or Non-Convertible Debentures.

  1. Both (I) and (II)

  2. Both (I) and (III)

  3. Both (II) and (III)

  4. All of (I), (II), (III) and (IV)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be classified by security (mortgage/simple), transferability (registered/bearer), redemption (redeemable/irredeemable), and conversion (convertible/non-convertible). All listed categories are valid.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Interest payable on debentures is __________. 

  1. an appropriation of profits of the company

  2. a charge against profits of the company

  3. transferred to sinking fund interest A/c

  4. transferred to sinking fund A/c
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Interest on debentures is a mandatory expense for the company, regardless of profit. Therefore, it is a charge against profit, not an appropriation of profit.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

In case of debentures issued as collateral securities, the lender is entitled to ____________.

  1. interest only on the amount of loan

  2. interest on loan as well debentures issued as collateral security

  3. interest only on debentures issues as collateral security

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

When debentures are issued as collateral security, they are a secondary security. The lender is only entitled to interest on the primary loan amount, not on the collateral debentures.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Which of the following statements is false?

  1. A company can issue convertible debentures

  2. Debentures cannot be secured

  3. A company can issue redeemable debentures

  4. Debenture have no right to participate in profits over and above their fixed interest.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A debenture is a type of debt instrument unsecured by collateral. Since debentures have no collateral backing, debentures must rely on the creditworthiness and reputation of the issuer for support.