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

As per SEBI Guidelines Debenture Redemption reserve is required to be created in case the company issue debentures with a maturity of __________.

  1. more than 18 months

  2. 2 years

  3. 10 years

  4. 5 years
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

SEBI guidelines mandate the creation of a Debenture Redemption Reserve (DRR) for debentures with a maturity period of more than 18 months.

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 amounting to Rs. $2,00,000$ are redeemed at a premium of $5$% by issue of shares amounting to Rs. $1,00,000$ at a premium of $10$%. The amount to be transferred to capital redemption reserve ___________.

  1. Rs. $1,05,000$

  2. Rs. $1,00,000$

  3. Rs. $2,00,000$

  4. Rs. $1,11,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Capital Redemption Reserve (CRR) is created by the amount of preference shares redeemed out of profits. The nominal value of shares to be redeemed is 2,00,000. Since 1,00,000 is raised via a fresh issue of shares, the amount to be transferred to CRR is 2,00,000 - 1,00,000 = 1,00,000.

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 the following accounts can be transferred to capital redemption reserve account?

  1. General reserve account

  2. Forfeited shares account

  3. Profit prior to incorporation

  4. Share premium account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Capital Redemption Reserve (CRR) must be created out of divisible profits. General Reserve is a form of divisible profit, whereas share premium and forfeited shares are capital receipts and cannot be used for this 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

Debentures premium cannot be used to ____________.

  1. write off the discount on issue of shares or debentures

  2. write off the premium on redemption of shares or debentures

  3. pay dividends

  4. write off capital loss
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Securities Premium (or Debenture Premium) has restricted uses under the Companies Act. It cannot be used to pay dividends to shareholders.

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

Capital redemption reserve account is prepared when ___________.

  1. redemption is done out of issue of fresh shares

  2. redemption is done out of profits of the company

  3. redemption is done through company's capital fund

  4. All of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Capital Redemption Reserve (CRR) is created when preference shares are redeemed out of the company's divisible profits, rather than from the proceeds of a fresh issue of shares.

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 the following statements is false?

  1. Debenture is a form of borrowing fro public

  2. Normal rate of interest on debentures is specified on issue

  3. Debenture interest is a charge against profits

  4. The issue price and redemption value of debentures will always be equal
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be issued at a discount, at par, or at a premium, and they can be redeemed at par or at a premium. Therefore, the issue price and redemption value are not always equal.

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

Debenture Premium Account is a -

  1. Personal Account

  2. Real Account

  3. Nominal Account

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

Debenture Premium (when received on issue) is a gain for the company, making it a nominal account. However, in some contexts, it is treated as a liability (personal account). Given the options, 'Nominal Account' is the standard classification for premium on 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

From the point of view of tenure, the debentures are classified as -

  1. Secured and unsecured Debentures

  2. Redeemable Debentures and Irredeemable Debentures

  3. Convertible Debentures and Non-convertible Debentures

  4. Registered Debentures and Bearer Debentures
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

From the point of view of tenure (time), debentures are classified as redeemable (repayable after a fixed period) or irredeemable (perpetual).

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

Convertible Debentures are those debentures which are -

  1. convertible into equity only at the point of debenture holders.

  2. convertible into equity shares only at the option of company only.

  3. convertible into equity shares only at the option of debenture holders or company.

  4. convertible into any securities at the option of debenture holders or company.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A convertible debenture is a type of long-term debt issued by a company that can be converted into stock after a specified period. Convertible debentures are usually unsecured bonds or loans meaning that there is no underlying collateral connected to the debt.

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

In the Balance Sheet of a company, Debenture Premium Account appears under the head:

  1. Share Capital

  2. Reserves & Surplus

  3. Non-Current Liabilities

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

Debenture Premium (or Securities Premium) is a capital reserve and is shown under the head 'Reserves and Surplus' in the balance sheet.