Tag: discount/loss on issue of debenture written off

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Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Calculating the amount of profit to be set aside annually with the help of sinking fund table, is the ____ step involved in the working of sinking fund method.

  1. first

  2. second

  3. third

  4. fourth
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The first step in the sinking fund method is to determine the annual amount to be set aside using the sinking fund table, which calculates the annuity required to reach the target sum.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

When debentures are issued at discount. Such discount_________.

  1. May be written off against revenue profits

  2. May be written of against capital profit

  3. Both a & b

  4. Shown at debit side of balance sheet
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Similar to question 537045, the discount on the issue of debentures is a capital loss that can be written off against either capital or revenue profits.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Interest is paid to the person who produces the interest coupon attached to debenture in case of -

  1. Bearer Debentures

  2. Registered Debentures

  3. All types of Debentures

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

Option A is correct.

The debentures which are payable to bearer and whose names do not appear in the register of debenture holders are known as “Bearer Debentures”. Coupons for interest are attached to the document and interest is paid to the holders as it falls due. Bearer Debentures are transferably by mere delivery.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

X.Ltd. issued Rs$1,00,000$ $12\%$ debentures at a discount of $6\%$ on $1st$ April repayable by five equal annual drawings of Rs$20,000$ each on $31st$ March every year. The amount of discount to be written of each year assuming that the company closes its accounts on financial year basis is-

  1. Rs$1,200$ each year

  2. Rs$2,000, Rs1600, Rs1,200, Rs800, Rs400$

  3. Rs$1,000$ each year

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

The total discount is 6,000 (6% of 100,000). The debentures are redeemed in five installments of 20,000 each. The outstanding amounts are 100k, 80k, 60k, 40k, and 20k. The ratio is 5:4:3:2:1. Distributing 6,000 in this ratio gives 2,000, 1,600, 1,200, 800, and 400.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

In the Balance Sheet of a company, Debenture Redemption Premium Account appears under the head:

  1. Share Capital

  2. Reserves & Surplus

  3. Non-Current Liabilities

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

The premium payable on redemption is a long-term liability that the company is obligated to pay in the future, thus it is classified under Non-Current Liabilities.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

A Ltd. took over the assets of Rs$6,60,000$ and liabilities of Rs$80,000$ of B Ltd. for an agreed purchase consideration of Rs$6,00,000$ payable $10\%$ in cash and the balance by the issue of $15\%$ Debentures of Rs$100$ each at $10\%$ discount.
The number of debentures to be issued is-

  1. $6,600$

  2. $6,000$

  3. $5,400$

  4. $4,500$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Purchase consideration = 600,000. Cash paid = 10% of 600,000 = 60,000. Balance to be paid in debentures = 540,000. Issue price = 100 - 10% = 90. Number of debentures = 540,000 / 90 = 6,000.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

X Ltd issues $500, 15\%$ Debentures of Rs$100$ each on $1st$ May at a discount of $10\%$ redeemable at a premium of $5\%$ after $4$ years. Interest was payable half yearly on $30th$ June and $31st$ December. The amount of interest debited to profit & Loss Account for the year ended $31st$ March is-

  1. Rs$1,250$

  2. Rs$3,750$

  3. Rs$5,000$

  4. Rs$6,875$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Total amount of debentures = 500*100 = Rs. 50,000
Interest at 15% for full year = Rs. 7500
Debentures issued on 1st May. So interest for 11 month from 1st May to 31st March will be debited. 
Interest for 11 Months = 7500/12*11 = Rs.6875

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

X Ltd. has issued $14\%$ Debentures of Rs $20,000$ at a discount of $12\%$ on April $01$ and the company pays interest half-yearly on June $30$, and December $31$ every year. On March $31$ the amount shown as "Interest accrued but not due" in the Balance Sheet will be

  1. Rs$70,000$ shown along with Debentures

  2. Rs$70,000$ under current liabilities

  3. Rs$1,20,000$ shown along with Debentures

  4. Rs$12,000$ under current liabilities
Reveal answer Fill a bubble to check yourself
B Correct answer
Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

X Ltd issues $500, 15\%$ Debentures of Rs$100$ each on $1st$ May at a discount of $10\%$ redeemable at a premium of $5\%$ after $4$ years. Interest was payable half yearly on $30th$ June and $31st$ December. The amount of interest paid for the year ended $31st$ March is-

  1. Rs$1,250$

  2. $3,750$

  3. $Rs5,000$

  4. $Rs.6,875$
Reveal answer Fill a bubble to check yourself
C Correct answer
Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Whenever debentures are cancelled, any profit on cancellation is transferred to _________________.

  1. Profit and Loss Account

  2. Sinking Fund Account

  3. Capital Redemption Reserve Account

  4. Capital Reserve Account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Whenever debentures are transferred, and profit is earned it is capital profit. Hence, any capital profit should be transferred to Capital reserve, and if sinking fund exists, it should be transferred to sinking fund account.