Tag: accounting effects for redemption of debentures

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

The Debenture Redemption Reserve account appears on the liability side of the balance sheet under the head ___________.

  1. capital

  2. reserves and surplus

  3. non-current liabilty

  4. current liability
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Debenture Redemption Reserve (DRR) is a reserve created out of profits to ensure funds are available for the redemption of debentures. In the balance sheet, it is classified under the 'Reserves and Surplus' head within Shareholders' Funds.

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 the debentures are redeemed, the requisite amount of Debenture Redemption Reserve is transferred to ___________.

  1. statutory reserve

  2. general reserve

  3. revenue

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

Once the debentures are fully redeemed, the purpose of the Debenture Redemption Reserve (DRR) is fulfilled. The balance in the DRR account is then transferred to the General Reserve, as it is no longer required for its specific purpose.

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

No DRR (Debenture Redemption Reserve) is required in case of privately placed debentures.

  1. True

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

According to the Companies Act and relevant rules, companies are not required to create a Debenture Redemption Reserve (DRR) for debentures that are privately placed.

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

A price exclusive of the interest for the period for which the seller held the debentures is called _________________.

  1. Ex-interest price

  2. Cum-interest price

  3. Plus-interest price

  4. Additional-interest price
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

An 'Ex-interest' price means the price of the debenture excludes the interest accrued since the last interest payment date. Conversely, a 'Cum-interest' price includes the accrued interest.

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

Withdrawal from DRR is permissible only after ____% of the debenture liability has been redeemed.

  1. 30

  2. 40

  3. 10

  4. 25
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under current regulations, companies may withdraw from the Debenture Redemption Reserve (DRR) only after at least 10% of the total debenture liability has been redeemed.

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

Preference shares may be redeemed out of________________.

  1. Proceeds of Debentures

  2. Proceeds of new issue of shares

  3. Out of divisible profits

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

Preference shares can be redeemed either out of the proceeds of a fresh issue of shares or out of the company's divisible profits. Therefore, both options (b) and (c) are correct.

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

Company should created DRR equivalent to _____% of the amount of debenture issue before redemption of debenture can commence.

  1. 75

  2. 40

  3. 50

  4. 25
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Companies are required to create a Debenture Redemption Reserve (DRR) equivalent to a specified percentage of the debenture issue before redemption can commence. The current requirement is 25% for certain companies, though older textbooks or specific contexts sometimes cite 50%. Given the options, 50% is the standard academic answer in many older curricula.

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 debentures account is recorded on issue of debentures.

  1. A real account

  2. A nominal account-income

  3. A personal account

  4. A nominal account-expenditure
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The 'Premium on Redemption of Debentures' account represents a liability that the company will have to pay to debenture holders at the time of redemption. Since it represents an amount payable to a specific group (debenture holders), it is classified as a personal account.