Tag: issue of debentures at par, premium, discount, collateral security and 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

If a 2 - year redeemable bond is purchased and held till maturity , the rate of return earned is called ______________.

  1. Coupon rate

  2. Required rate of return

  3. Yield to maturity

  4. Current yield

  5. Either (B) or (D) above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Yield to maturity (YTM) is the total anticipated return on a bond if it is held until it matures. It accounts for all coupon payments and the difference between the purchase price and 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 can be utilized for redemption of preference shares?

  1. The proceeds of fresh issue of debentures

  2. The proceeds of issue of fixed deposits

  3. The sale proceeds of investments

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Preference shares can be redeemed out of the proceeds of a fresh issue of shares or debentures made for the purpose of redemption. Fixed deposits and sale of investments are not standard sources for redemption under the Companies Act.

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

The Securities Premium amount may be utilised by a company for

  1. Writing off any loss on sale of fixed asset

  2. Writing off any loss of revenue nature

  3. writing off the expenses/ discount on the issue of debentures

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

According to the Companies Act, the Securities Premium account can be used for specific purposes, including writing off the expenses or commission paid or discount allowed on any issue of securities or 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

In case of an issue of a debenture of Rs$100$ at Rs$100$ but redeemable at Rs$106$, Rs$6$ is to be:

  1. Debited to Debenture Redemption Premium Account

  2. Credited to Loss on Issue of Debentures Account

  3. Debited to Loss on Issue of Debentures Account

  4. Debited to Discount on Issue of Debentures Account
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When debentures are issued at par but redeemable at a premium, the premium payable on redemption is treated as a loss on issue. This loss is debited to the Loss on Issue of Debentures Account.

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 false with respect to debentures?

  1. These can be issued for cash

  2. These can be issued for consideration other than cash

  3. These can be issued as collateral security

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

Debentures are debt instruments and represent a loan to the company. They cannot be issued in lieu of dividends, as dividends are distributions of profit to shareholders.

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/are true with respect to debentures?

  1. They can be issued for cash

  2. They can be issued for consideration other than cash

  3. These can be issued as collateral security

  4. Both (a) and (b) above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debentures can be issued for cash or for consideration other than cash (like purchasing assets). They can also be issued as collateral security for loans.

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
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When debentures are issued as collateral security, the primary entry is recording the loan taken. The issuance of debentures is often recorded via a memorandum entry or by debiting Debenture Suspense Account, but the actual cash transaction is 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

What is the journal entry for issuing debentures as collateral security?

  1. CashDebentures Dr.  Cr. 
  2. CashDebentures Suspense Dr.  Cr. 
  3. Debentures SuspenseDebenture Dr.  Cr. 
  4. LoanDebentures Dr.  Cr. 
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The standard journal entry for issuing debentures as collateral security is to debit Debenture Suspense Account and credit the Debentures Account.

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

Monika Ltd. purchased land and building worth Rs. 28,80,000 and in lieu issued debentures of Rs. 100 each at a discount of $4\%$. What is the number of debentures issued?

  1. 28,000

  2. 30,000

  3. 32,000

  4. 35,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The amount payable is 28,80,000. Debentures are issued at 4% discount, so the issue price per debenture is 100 - 4 = 96. Number of debentures = 28,80,000 / 96 = 30,000.

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

V Kare Ltd. issued R. 1,00,000, $7%$ debentures at $5\%$ discount redeemable after 10 years at premium of $5\%$.T he journal entry is:

  1. Bank Account Discount on Debentures accountDebentures 95,000   5,000 1,00,000
  2. Bank Account Discount on Debentures accountDebentures 1,00,000    5,000 1,05,000
  3. Bank Account Discount on Debentures accountDebenturesPremium of redemption of debentures 1,00,000    5,000 1,00,000    5,000
  4. Bank Account Loss on the issue of debenturesDebenturesPremium of redemption of debentures 95,000 10,000 1,00,000    5,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The loss on issue includes both the discount on issue (5%) and the premium on redemption (5%), totaling 10%. The entry debits Bank for 95,000, Loss on Issue for 10,000, and credits Debentures for 100,000 and Premium on Redemption for 5,000.