Tag: debentures redemption

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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

Which of the following is not true about Debenture Redemption Reserve(DRR)?

  1. DRR created @ 50% of the amount of debentures issued before commencement of redemption

  2. Withdrawal from DRR can be made only after 10% of debenture liability has been redeemed

  3. DRR is required in case of fully convertible debenture

  4. DRR is not required in case of debentures with a maturity period of 18 months or less
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Fully convertible debentures do not require the creation of a Debenture Redemption Reserve (DRR) because they are converted into equity rather than redeemed in cash.

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

On $1$st April X Lts. issued Rs$1,00,000   15\%$ Debentures of Rs$10$ each at $94\%$ redeemable at per as follows:

Yearend Nominal value of Total Debentures to redeemed
2 10%
3 20%
4 30%
5 40%

The amount of discount to be written off each year assuming that the company closes its accounts on financial year basis is -

  1. Rs$2,400, Rs1,800, Rs 1,200, Rs 600$

  2. $Rs 1,500, Rs 1,500, Rs 1,350, Rs 1,050, Rs 600$

  3. $Rs1,200$ each year

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

The discount on issue (6,000) is written off based on the outstanding debenture amount each year. The redemption schedule is 10%, 20%, 30%, 40%. The outstanding amounts are 100%, 90%, 70%, 40%. The ratio is 10:9:7:4. Total parts = 30. Year 1: (10/30)*6000 = 2000... wait, the calculation in the option B is the only one that reflects a declining balance method based on the redemption schedule provided.

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

On $1$st April X Lts. issued Rs$1,00,000   15\%$ Debentures of Rs$10$ each at $94\%$ redeemable at per as follows:

Year beginning Nominal value of Total Debentures to redeemed
2 10%
3 20%
4 30%
5 40%

The amount of discount to be written off each year assuming that the company closes its accounts on financial year basis is -

  1. Rs$1,500$ each year

  2. Rs$1,200$ each year

  3. Rs$2,000, Rs 1,800, Rs 1,400, Rs 800$

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

Similar to the previous question, the discount is written off based on the outstanding debenture balance. The redemption schedule results in a specific declining balance, and option C provides the correct distribution of the 6,000 discount over the years.

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 owners debentures are cancelled any profit on cancellation is transferred to __________.

  1. General reserve

  2. Capital reserve

  3. P/L Account

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
When own debenture are purchased by the company from the open market, these can be purchased for two reasons, either for cancellation or for investments. Profit on account of cancellation of debenture is a capital profit and should be transferred to capital reserve account.
Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

X. Ltd. issued $500, 15\%$ Debentures of Rs$100$ each at a discount of $10\%$ redeemable at a premium of $5\%$ after $4$ years. The amount of annual interest on Debentures is -

  1. Rs$6,750$

  2. Rs$7,500$

  3. Rs$7,875$

  4. Rs$7,125$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The face value of the debentures is 500 * 100 = 50,000. The interest is 15% of the face value. 15% of 50,000 = 7,500.

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

X.Ltd. issued Rs$1,00,000$ $12\%$ debentures of Rs$100$ each at a premium of $10\%$, which are redeemable after $10$ years at a premium of  The amount of loss on redemption of debentures to be written off every year= ?

  1. Rs$10,000$

  2. Rs$30,000$

  3. Rs$20,000$

  4. Rs$40,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
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 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 underwriting commission
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to the Companies Act, the Securities Premium Account (often referred to as debenture premium when applied to debentures) has restricted uses. It cannot be used to pay dividends to shareholders.