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 statement correctly describes debentures?

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

  2. Income bonds that are not require interest payments only 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 representing a loan to a company. They are distinct from income bonds, which only pay interest if earnings are sufficient. Option C is the standard textbook definition provided in this context.

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 items is not an appropriation of profit for a limited company_______.

  1. Preference shares dividend payable

  2. Ordinary dividend payable by the company

  3. Income tax payable by the company

  4. Debenture interest payable
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Appropriation of profit refers to the distribution of net profit after tax. Debenture interest is a charge against profit, meaning it must be paid regardless of whether the company makes a profit or a loss, unlike 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

Debenture is -

  1. a written instrument acknowledging a debt written by its holder

  2. an oral acknowledgement of debt by a company

  3. a written instrument acknowledging a debt written by its company

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

Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.

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

Debentures can be ________.
I. Mortgage Debentures or Simple Debentures.
II. Registered Debentures or Bearer Debentures.
III. Redeemable Debentures or Non- Convertible Debentures.
IV. Convertible Debentures or Non- Convertible Debentures.

  1. Both (I) and (II) above

  2. Both (I) and (III) above

  3. Both (II) and (III) above

  4. All of (I), (II), (III) and (IV) above.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be classified by security (mortgage vs. simple), ownership (registered vs. bearer), and convertibility (convertible vs. non-convertible). All listed categories are valid ways to classify 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

From the point of view of security, 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
A Correct answer
Explanation

Debentures can be secured in nature, it may be unsecured in nature. A secured debenture is secured by the charge on some asset or set of assets which is known as secured or mortgage debenture and another when it is issued solely on the credibility of the issuer is known as the naked or unsecured debenture. 

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

Debenture Trust Deed is created by -

  1. The company

  2. The Trustees

  3. The SEBI

  4. The company Law Tribunal
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The document created by the company, whereby trustees are appointed to protect the interest of debenture-holders before they are offered for public subscription is known as Debenture Trust Deed.

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

Debenture Trust Deed must be executed within-

  1. $1$ month of the closure of issue

  2. $3$ months of the closure of issue

  3. $6$ months of the closure of issue

  4. $1$ month before the opening of issue
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 A trust deed shall be executed by the issuer company in favour of the debenture trustees within six months of the closure of the 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

Debenture contains provisions as regards -

  1. the repayment of principal only

  2. the payment of interest at a fixed rate only

  3. the payment of interest at a fluctuating rate only

  4. the repayment of principal and the payment of interest at a fixed rate.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debenture is a written instrument acknowledging a debt to the Company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.

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 Balance Sheet of a Company, Interest accrued and due on debentures appears under the head -

  1. Share Capital

  2. Reserves & Surplus

  3. Current Liabilities

  4. Non-Current Liabilities
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest accrued and due on debentures represents a short-term obligation that the company must pay within the next accounting period. Therefore, it is classified as a current liability on the balance sheet.