Tag: accounting effects for redemption of debentures

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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

Profit on sale of sinking fund investment is credited to ______________.

  1. General reserve

  2. Capital reserve

  3. Sinking fund

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

Profit or loss on sale of investments is transferred to sinking fund. After the redemption of all debentures, balance left in sinking fund is transferred to general reserve but the portion of the profit on sale of sinking fund investment is preferably transferred to capital 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

Sinking fund is _________.

  1. always general purpose fund

  2. always for some specific purpose

  3. both purposes (A & B)

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A sinking fund is always created for a specific purpose, such as the redemption of debentures or the replacement of a specific asset.

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 the redemption of debentures, any credit balance in the Sinking Fund A/c is transferred to ______ A/c.

  1. General reserve

  2. Capital reserve

  3. P & L

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

After the redemption of all debentures, balance left in sinking fund is transferred to general reserve but the portion of the profit on sale of sinking fund investment is preferably transferred to capital reserve.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Which of these is not a method of redemption of debentures ?

  1. Purchase in open market

  2. Auction of debentures

  3. Drawing of lots

  4. Payment in lump sum
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Standard methods for redemption of debentures include purchase in open market, drawing of lots, and payment in lump sum. Auction is not a recognized method for debenture redemption.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Debentures can be redeemed _____________.

  1. At par

  2. At premium

  3. At discount

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be redeemed at par (face value), at a premium (above face value), or sometimes at a discount, depending on the terms of the issue.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

When a company issues debenture, it usually mentions the terms on which they will be redeemed on their maturity.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

It is a legal and accounting requirement to state the terms of redemption (maturity date, price, etc.) at the time of issuing debentures.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Premium on redemption is a/an  ____________ of a company payable in future.

  1. liability

  2. asset

  3. income

  4. expense
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

If a company agrees to pay a premium upon redemption, that premium represents a future obligation or debt that the company must settle, making it a liability.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Premium on redemption of debenture A/c is a _____.

  1. personal A/c

  2. real A/c

  3. nominal A/c

  4. suspense A/c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Premium on redemption is treated as a loss or expense for the company, and in accounting, expenses are classified under nominal accounts.