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

Which of the following is true regarding debentures?

  1. They can be issued for cash

  2. They can be issued for a consideration other than cash

  3. They cannot be issued as collateral security

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

Debentures can be issued for cash or for consideration other than cash (such as purchasing assets). Both options A and B are correct, making D the right choice.

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?

  1. A company can issue redeemable debentures

  2. A company can issue debentures with voting rights

  3. A company can issue convertible debentures

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

According to the Companies Act, companies are generally prohibited from issuing debentures with voting rights. Voting rights are reserved for equity 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

The following journal entry appears in the books of X Co. Ltd. The debentures have been issued at.

Dr. (Rs.) Cr. (Rs.)
Bank A/c $96,000$
Loss on issue of debentures A/c $10,000$
To $8\%$ debentures A/c $1,00,000$
To premium on redemption of debentures A/c $6,000$

  1. Discount of $4\%$

  2. Discount of $6\%$

  3. Premium of $6\%$

  4. Discount of $10\%$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The debentures are issued for 1,00,000. The bank received 96,000. The difference of 4,000 represents the discount. 4,000 / 1,00,000 = 4%.

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 regarding debentures?

  1. They can be issued to vendors

  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 a distribution of profits to shareholders. Debentures are debt, and interest is paid to debenture holders. Debentures cannot be issued in lieu of dividends.

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

Debenture premium cannot be used to.

  1. Write off the discount on issue of shares or debentures

  2. Write off the premium on redemption of shares or debentures

  3. Pay dividends

  4. Write off capital loss
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Securities premium (or debenture premium) has specific legal uses under the Companies Act. Paying dividends out of this premium is prohibited.

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 cash A/c and credit the loan A/c for which security is given

  4. 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 a collateral security there are two treatments in the accounting books. 

One of the methods is where no journal entry is made in the account books at the time of issue of such debentures. Hence, only the entry of loan is to be passed.

Hence, C is the correct option.

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 $20,000$, $8\%$ 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. $40,000$

  2. Rs. $10,000$

  3. Rs. $20,000$

  4. Rs. $8,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Total loss on redemption is 20% of 20,000 * 10 = 40,000. The debentures are redeemed after 5 years, so the annual loss to be written off is 40,000 / 5 = 8,000.

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

Debentures of a company can be issued :

  1. For cash

  2. For consideration other than cash

  3. As a collateral security

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

Debentures can be issued for cash, for consideration other than cash (like assets), or as collateral security for a loan. All these methods are valid.

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

On issue of debentures as a collateral security, which account is creadited?

  1. Debentures Account

  2. Bank Loan Account

  3. Debenture holdings Account

  4. Debenture Suspense Account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Collateral security means security provided to the lender over and above the prime or principal security. Collateral security is to be realized only when the principal security fails to pay the amount of loan.
Debentures Suspense A/c                          Dr.
To Debentures A/c

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. These are treated as negotiable instruments.

  2. Their transfer requires a deed of transfer.

  3. These are transferable by mere delivery

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

Bearer debentures are negotiable instruments (A true), transferable by mere delivery (C true), with interest paid to the holder (D true). Their defining feature is that no deed is needed for transfer - simple delivery suffices. Option B is false - their transfer does NOT require a deed.