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 debentures are secured by a charge -

  1. Debentures which are convertible on or after $18$ months

  2. Non - convertible debentures which are redeemable on or after $18$ months

  3. Debentures which are non - convertible on or after $18$ months

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

If debentures are non-convertible, they are paid at the time of redemption. Debentures which are non-convertible and redeemable after a period of more than 18 months must be secured by creating a charge against the property 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

In Balance Sheet of a Company, Interest accrued but not 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 but not due on debentures is a liability that the company must pay within the next 12 months, classifying it as a current liability in the balance sheet.

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

X Ltd. purchased land and building for Y. Ltd for a book value of Rs$4,00,000$. The consideration was paid by issue of $12\%$ Debentures of Rs$100$ each at a discount of $20\%$. The debentures account is credited with -

  1. $Rs 5,20,000$

  2. $Rs 5,00,000$

  3. $Rs 4,80,000$

  4. $Rs 3,20,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The purchase consideration is 4,00,000. Debentures of 100 are issued at a 20% discount, so the issue price is 80. Number of debentures = 4,00,000 / 80 = 5,000. The debentures account is credited with the face value: 5,000 * 100 = 5,00,000.

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

Loss on Issue of Debentures Account is a -

  1. Personal Account

  2. Real Account

  3. Nominal Account

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

Loss on issue of debentures is an expense account. According to the rules of accounting, all expenses and losses are classified as nominal accounts.

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 the Balance Sheet of a company Debentures account appears under the head:

  1. Share Capital

  2. Reserves & Surplus

  3. Secured Loans

  4. Miscellaneous Expenditure
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In the balance sheet, debentures are long-term borrowings and are traditionally shown under the head of Secured Loans (or Long-term Borrowings in modern formats).

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 underwriting commission in case of issue of debentures can't exceed _______.

  1. $2\%$

  2. $2.5\%$

  3. $3\%$

  4. $5\%$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the Companies Act, the underwriting commission for debentures is capped at 2.5% of the issue price.

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. They can be issued for cash

  2. They can be issued for consideration other than cash

  3. They can be issued as collateral securities

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

Sometimes a company purchases assets from vendors and instead of making payment in cash issues debentures for consideration thereof, such issue of debenture is called as issued for consideration other than cash. e.g. Purchase of assets from the company by issuing debentures as consideration,  debentures 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

When debenture are issued as collateral security, the final entry for recording the transaction in the books is _______.

  1. Credit debenture A/c. and Debit cash A/c.

  2. Debit debenture suspense A/c. and credit cash A/c.

  3. Debit debenture suspense A/c. and credit debenture A/c.

  4. Debit cash A/c. and credit loan A/c. for which security is given
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A collateral security may be defined as a subsidiary or secondary or additional security besides the primary security when a company obtains a loan or overdraft  from a bank or any other financial institutions. The final journal entry for recording this transaction is:


Debenture suspense A/c     Dr.
            To Debenture 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/are true with respect to debentures?

  1. They can be issued for cash.

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

  3. They cannot be issued as collateral securities.

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

Sometimes a company purchases assets from vendors and instead of making payment in cash issues debentures for consideration thereof, such issue of dentures is called as issue for consideration other than cash. Debenture can be issued for cash and collateral security.

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

Mohan Lai Ltd. purchased a plant for Rs. 20,000 payable Rs. 6,500 in cash and balance by issue of 9% debentures of Rs. 100 each at a primium of 10%. Find the number of debentures to be issued to the vendor.

  1. 125 of Rs. 100 each

  2. 123 of Rs. 100 each

  3. 112.50 of Rs. 100 each

  4. 143 of Rs. 100 each
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The amount payable is 20,000 - 6,500 = 13,500. The debentures are issued at a 10% premium, so the issue price is 110. Number of debentures = 13,500 / 110 = 122.72. Since you cannot issue a fraction of a debenture, the question likely implies 123 debentures (rounding up).