Tag: introduction to debentures

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Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following is the odd one?

  1. Net worth

  2. Owners equity

  3. Fixed interest liability

  4. Non-redeemable shares
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Net worth, owners' equity, and non-redeemable shares are all components of equity or capital. Fixed interest liability is a debt obligation, making it the odd one out.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

A debenture holder is not entitled to _________.

  1. voting right

  2. claim dividend

  3. claim bonus shares

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

Debenture holders are lenders, not owners. Therefore, they do not have voting rights, nor are they entitled to dividends or bonus shares, which are reserved for equity shareholders.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following is incorrect with respect of debentures?

  1. They can be issued for cash

  2. They can be issued for consideration other than cash

  3. They can be issued as collateral security

  4. They can be issued in lieu of dividends
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Dividends are distributions of profit to shareholders. Debentures are debt, and interest is paid on them; they cannot be issued in lieu of dividends.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

In the event of liquidation of the company the debenture holders have prior right for __________.

  1. interest

  2. principal amount

  3. b<span>oth (a) &amp; (b)</span>

  4. <span>none of the above</span>
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In the event of liquidation, debenture holders have a prior claim over shareholders, but they are not the only ones with priority. Other creditors and statutory dues often rank higher or equal, so 'none of the above' is the most accurate choice given the options.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

When a company is not earning profits, then which of the following securities proves a burden on the finances of the company?

  1. Equity Shares

  2. Preference Shares

  3. Redeemable Preference Shares

  4. Debentures
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on debentures is a mandatory expense that must be paid regardless of whether the company earns a profit. Equity and preference dividends are typically paid out of profits.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following is false?

  1. Equity is owners' stake and the debentures is a debt

  2. Rate of interest on debentures is fixed

  3. Debenture holders get preferential treatment over the equity holders at the time of liquidation

  4. Interest on debentures is an appropriation of profits
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on debentures is a charge against profits, not an appropriation of profits. An appropriation of profits is a distribution of earnings, whereas interest is an expense incurred to earn those profits.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following securities put a burden on the finance of a company, when there are no profits?

  1. Equity shares

  2. Preference shares

  3. Debentures&nbsp;

  4. All of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest on debentures is a fixed financial obligation that the company must pay regardless of its profit status, making it a burden during periods of no profit.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

Which of the following statement correctly describes debentures?

  1. Income bonds that require interest payments only when earnings permit.

  2. Income bonds that are not require interest payments&nbsp; when earnings permit.

  3. Subordinated debt and rank behind convertible bonds.

  4. A form of lease financing similar to equipment trust certificates.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Debentures are debt instruments issued by companies. They are generally unsecured or secured by assets, and they are considered liabilities that rank ahead of equity. Option C correctly identifies that debentures are a form of debt, though the specific ranking can vary by contract.