Tag: issue of debentures for consideration other than cash

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Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following is true with regard to $10\%$ Debentures issued at a discount of $20\%$?

  1. The carrying amount of debentures is $80\%$ of face value

  2. Issue price and the carrying amount of debentures will necessarily be equal

  3. At the time of redemption, the debenture holder will be paid the issue price

  4. The carrying amount and the face value of debentures are equal
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The carrying amount of a debenture is its face value, adjusted for any unamortized discount or premium. At the time of issue, the carrying amount is the issue price, but over time, it amortizes back to the face value.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following is not a characteristic of Bearer Debentures?

  1. They are treated as loan

  2. Their transfer requires a deed of transfer

  3. They are transferable by mere delivery

  4. The interest on it is paid to the bearer or holder
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Bearer debentures are transferable by mere delivery. They do not require a deed of transfer, which is a characteristic of registered debentures.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Income tax deducted from interest paid on debentures is shown as.

  1. Expenses of the Co.

  2. Asset of the Co.

  3. Liability of the Co.

  4. Income of the Co.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Income tax deducted at source (TDS) from interest paid on debentures represents an amount the company is obligated to pay to the government on behalf of the debenture holder. Since this is an obligation to be settled in the future, it is classified as a current liability of the company.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following statements is true?

  1. A debenture holder is 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, not equity, so holders are creditors, not owners. Interest is a fixed charge payable regardless of profits. A debenture can be issued at a discount and redeemed at a premium, which is a standard accounting practice for long-term debt.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

When debentures are issued as collateral security, the final entry for recording the transaction in the books is?

  1. Credit Debentures A/c and Debit Cash A/c

  2. Debit Debentures Suspense A/c and Credit Cash A/c

  3. Debit Debentures Suspense A/c and Credit Debentures A/c

  4. Debit Cash A/c and credit the Loan A/c for which security is given

  5. Debit Debentures A/c and credit the Loan A/c for which security is given
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When debentures are issued as collateral security, the standard accounting treatment is to debit the Debentures Suspense Account and credit the Debentures Account to reflect the potential liability without affecting the cash flow of the loan itself.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following statements is false?

  1. At maturity, debenture holders get back their money

  2. Debentures can be forfeited for non-payment of call money

  3. In company's balance sheet, debentures are shown under the head Secured Loans

  4. Interest on debentures is charged against profits
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debentures represent a debt obligation and cannot be forfeited for non-payment of call money, unlike shares. Shares can be forfeited because they represent ownership, but debentures are contractual debts.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

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 period of the debentures

  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 typically amortized over the life of the debentures to match the expense with the period of benefit.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

W Ltd. issued $40,000$, $8\%$ debentures of Rs. $10$ each at par, which are redeemable after $5$ years at a premium of $20\%$. The amount of loss on redemption of debentures to be written off every year will be.

  1. Rs. $80,000$

  2. Rs. $20,000$

  3. Rs. $8,000$

  4. Rs. $16,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The total loss on redemption is 20% of 40,000 * 10 = 80,000. Since the debentures are redeemed after 5 years, the annual loss to be written off is 80,000 / 5 = 16,000.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

How many debentures will a company be required to issue for satisfying the purchase consideration of Rs. $28,80,000$, if debentures of Rs. $100$ are issued at a premium of Rs. $20$ per debenture?

  1. $24,000$

  2. $28,800$

  3. $36,000$

  4. $32,000$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The issue price per debenture is 100 + 20 = 120. The number of debentures issued is the total consideration divided by the issue price: 2,880,000 / 120 = 24,000.

Multiple choice book keeping and accountancy company accounts - issue of debentures issue of debentures for consideration other than cash types of debentures issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following statement is false?

  1. A company can issue convertible debentures

  2. Debentures cannot be secured

  3. A company can issue redeemable debentures

  4. Debentures have no right to participate in profits over and above their fixed interest
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debentures can be secured by a charge on the assets of the company. Therefore, the statement that they cannot be secured is false.