Tag: redemption of debentures

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Questions Related to 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

The balance of the debentures sinking fund after redemption of debentures is transferred to ___________________.

  1. Debentures Account

  2. Profit and Loss Account

  3. General Reserve Account

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

Similar to previous questions, the balance of the sinking fund after the redemption of debentures is no longer required for its specific purpose 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

When debenture sinking fund is created ___________________.

  1. Both the accounts involved belong to current category

  2. Both the accounts involved belong to non-current category

  3. One is current item and another is non-current category

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

A sinking fund involves setting aside assets (investments) and creating a reserve (liability/equity). Both the investment (non-current asset) and the sinking fund reserve (non-current liability/equity) are non-current items.

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 is not the salient feature of sinking fund method?

  1. Interest is an integral part

  2. Amount released is affected by fluctuations in interest rate

  3. Investment in securities

  4. Premium is paid in advance at the beginning of year
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The sinking fund method involves periodic contributions to a fund that earns interest. It does not involve paying a premium in advance at the beginning of the year.

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

A check returned by bank marked "NSF" means that:

  1. Bank can't verify your identify

  2. There are not sufficient funds in your account

  3. Check has been forged

  4. Check can't be cashed being illegal
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

NSF stands for Not Sufficient Funds. It indicates that the account holder does not have enough money in their bank account to cover the amount of the check.

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

The following is common in sinking fund method:

  1. The amount received at the end of the life of an asset is fixed

  2. The amount received at the end of the life of an asset is not fixed

  3. The amount received at the beginning of the life of an asset is fixed

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

In the sinking fund method, the final amount depends on the interest earned on the investments, which can fluctuate, making the final value variable rather than fixed.

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

Under redemption by _________, debentures can also be redeemed by converting them into shares or new debentures.

  1. purchase

  2. conversion

  3. payment

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

Redemption by conversion allows debenture holders to exchange their debentures for shares or new debentures of the 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

From the point of view of Registration, 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
D Correct answer
Explanation

Debentures are classified as Registered (where the company maintains a register of holders) or Bearer (where the holder is the owner by possession).

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 is not the salient feature of sinking fund method?

  1. Interest is an integral part

  2. Amount released is affected by fractionations in interest rate

  3. Investment in securities

  4. Premium is paid in advance at the beginning of year
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Similar to question 412249, paying a premium in advance at the beginning of the year is not a feature of the sinking fund method.

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

Interest is credited to profit and loss account in ________________.

  1. annuity method

  2. sinking fund method

  3. insurance policy method

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

In the sinking fund method, interest earned on the sinking fund investments is credited to the Sinking Fund account, but the interest on the debentures themselves is an expense charged to the Profit and Loss 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

Identify the statement which is common in sinking fund method from the following.

  1. The amount received at the end of the life of an asset is fixed

  2. The amount received at the end of the life of an asset is not fixed

  3. The amount received at the beginning of the life of an asset is fixed.

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

This is a duplicate of question 412251. In the sinking fund method, the amount received at the end of an asset's life is NOT fixed because it depends on investment returns that fluctuate with market interest rates. If the amount were fixed, it would be characteristic of an annuity or insurance policy method. The variability of the final amount is specifically due to interest rate fluctuations affecting the accumulated sinking fund.