Tag: company accounts - redemption of debentures

Quizzes (3) Questions (60)

Questions Related to company accounts - redemption of debentures

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Which of the following statements is false?

  1. At maturity, debenture holders get back their money as per the terms and conditions of redemption.

  2. Debentures cab be forfeited for non payment of call money.

  3. In company's balance sheet, debentures are shown under secured loans.

  4. Interest on debentures is charged against profits.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debentures are debt instruments and cannot be forfeited for non-payment of call money in the same way shares can be, as they represent a loan rather than equity ownership.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

After redemption of debentures, the balance of debenture sinking fund is transferred to:

  1. Debenture account

  2. General reserve account

  3. Profit & loss account

  4. Capital reserve account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Once debentures are redeemed, the sinking fund is no longer needed, so the balance is transferred to the General Reserve account.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Accounting entry for recording loss on the realization of sinking fund investment is:

  1. Sinking fund account Sinking fund investment account  Dr.  Cr.
  2. Sinking fund investment account Sinking fund account  Dr.  Cr.
  3. Profit an loss account Sinking fund investment account  Dr.  Cr.
  4. Sinking fund investment account Profit and Loss account  Dr.  Cr.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If Sinking fund investments are sold—at loss:

Sinking fund a/c Dr. (with amount of loss)

To Sinking fund investment a/c (with book value of investments sold)

(Being sinking fund investments sold at loss)

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Which of the following should not be considered as a part of purchase consideration?

  1. Payment to equity shareholders

  2. Payment to preference shareholders

  3. Payment to debentureholders

  4. Cash payment to shareholders
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The payments to the debenture holders are not included in the purchase considerations.

The purchase consideration does not include the amount to be paid to the debentureholders by the transferee company.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Where all the debentures are redeemed, the balance left in the debentures sinking fund account is transferable to:

  1. Debenture account

  2. Sinking fund investment account

  3. Capital redemption reserve account

  4. General reserve account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Similar to the previous question, the balance in the debenture sinking fund after redemption is transferred to the General Reserve account.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

Accounting entry for making the provision for the redemption of debentures is:

  1. Profit and loss accountSinking fund account  Dr.  Cr.
  2. Profit and loss appropriation accountSinking fund account  Dr.  Cr.
  3. Profit and loss adjustment accountSinking fund account  Dr.  Cr.
  4. Debentures accountSinking fund account  Dr.  Cr.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The provision for the redemption of debentures via a sinking fund involves appropriating profits. The Profit and Loss Appropriation account is debited to set aside funds, and the Sinking Fund account is credited.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

When all the debentures are redeemed the balance left in the debentures sinking fund account is transferred to:

  1. General Reserve account

  2. Sinking Fund Investment account

  3. Debenture account

  4. Capital Redemption Reserve account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Once the debentures are redeemed, the purpose of the sinking fund is fulfilled. The remaining balance in the Sinking Fund account is a free reserve and is transferred to the General Reserve.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

____________ is created to provide fund for redemption of debentures as and when they become due for redemption.

  1. Investment fluctuation reserve.

  2. Sinking fund

  3. Dividend equalization reserve

  4. Debenture redemption reserve
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debenture Redemption Reserve (DRR) is a statutory requirement created by companies to ensure funds are available for the redemption of debentures.

Multiple choice elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

___________ is created to provide for not only depreciation on the assets but also to provide sufficient funds for replacement of the assets at the end of its life.

  1. Plant and Machinery replacement fund.

  2. Sinking fund

  3. Dividend equalization reserve

  4. Debenture redemption reserve
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A sinking fund method is a technique for depreciating an asset in bookkeeping records while generating money to purchase a replacement for the assets when it reaches the end of its useful life.