Tag: meaning and features of 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 statements is true?

  1. A debenture holder is an owner of the company.

  2. A debenture holder can get his money back only on the liquidation of the company.

  3. A debenture issued at a discount can be redeemed at a premium.

  4. A debenture holder receives interest only in the event of profits.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Debentures are debt instruments, and there is no legal restriction preventing a company from issuing them at a discount while redeeming them at a premium. The other options are incorrect because debenture holders are creditors, not owners, and they are entitled to interest regardless of 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

If debentures are issued as consideration for purchase of any fixed asset, the entry is _________________.

  1. Debit asset A/c; Credit vendor A/c

  2. Debit asset A/c; Credit bank A/c

  3. Debit asset A/c; Credit debenture A/c

  4. Debit debenture A/c; Credit asset A/c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When a fixed asset is purchased using debentures, the asset account is debited to record the increase in assets, and the debenture account is credited to record the liability created.

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

Discount on issue of debentures is a:

  1. revenue loss to be charged in the year of issue

  2. capital loss to be written off from capital reserve

  3. capital loss to be written off over the tenure of the debenture

  4. capital loss to be shown as goodwill
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Discount on the issue of debentures is a capital loss because it relates to the cost of raising long-term capital. It is amortized over the tenure of the debenture rather than being written off entirely in the year of issue.

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 statements is false?

  1. Debentures can be issued for cash or consideration other than cash or as collateral security

  2. Debentures can not be forfeited for non-payment of call money.

  3. A company can buy its own debentures.

  4. A debentures issued at a discount can be redeemed at a premium.
Reveal answer Fill a bubble to check yourself
B Correct answer
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. A company can issue redeemable debentures

  2. A company can issue debentures with voting rights

  3. A company can buy its own shares

  4. A company can buy its own debentures
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debentures are debt instruments and do not carry voting rights, which are reserved for equity shareholders. The other options describe legal actions a company can perform.

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. A company can issue bearer debentures.

  2. A company can issue convertible debentures.

  3. A company can issue redeemable debentures.

  4. A company can issue debentures with voting rights.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures are debt instruments and do not carry voting rights, which are reserved for equity shareholders. The other options are valid types of debentures.

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

The following entry appears in the bools of Vikas Ltd 

BankA/c 1,90,000
Loss on issue of Debenture A/c 26,000
To 9% Debentures A/c 2,00,000
To Premium on Redemption of Debentures A/c 16,000
Debentures have been issued at a discount of 

  1. 10%

  2. 7%

  3. 6%

  4. 5%
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The face value is 2,00,000. The cash received is 1,90,000. The difference is 10,000. However, the loss on issue is 26,000, which includes the 16,000 premium on redemption. Thus, the discount is 26,000 - 16,000 = 10,000. 10,000 / 2,00,000 = 5%.

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

An unsecured bond that provides no lien against property as security for bond obligation is classified as _____________.

  1. secured bond

  2. debenture

  3. obligation bond

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

A debenture is a long-term debt instrument that is not secured by physical assets or collateral, making it an unsecured bond.