Tag: issue of debentures

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Questions Related to issue of debentures

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

Consider the following statements-Current ratio is increased by

    1. issue of redeemable preference shares.
    2. selling of old furniture for cash.
    3. cash realized from debtors.
    Which of the statements given ab

    1. 1 and 2 only

    2. 2 and 3 only

    3. 1 and 3 only

    4. 1, 2 and 3
    Reveal answer Fill a bubble to check yourself
    A Correct answer
    Explanation

    Current ratio is Current Assets / Current Liabilities. Issuing preference shares increases cash (asset), and selling furniture for cash increases cash (asset), both improving the ratio. Cash from debtors is just an exchange of one current asset for another, leaving the ratio unchanged.

    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

    Discount on issue of debenture A/c is to be written off ___________.

    1. immediately

    2. within 3-4 years

    3. over the tenure of the debenture

    4. all the three alternatives are available to the company
    Reveal answer Fill a bubble to check yourself
    C Correct answer
    Explanation

    Discount on the issue of debentures is a capital loss that is amortized over the life of the debentures, matching the expense to the period the company benefits from the borrowed funds.

    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

    The issue of debentures less than the face value is called_______.

    1. at par

    2. at premium

    3. at discount

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

    When debentures are issued by the company at a price less than its nominal value (face value), it is said to be issued at discount.

    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 debenture is said to be issued at discount when the issue price is _____ the face price.

    1. more than

    2. less than

    3. equal to

    4. double than
    Reveal answer Fill a bubble to check yourself
    B Correct answer
    Explanation

    A debenture is issued at a discount when the company receives less cash than the face value (par value) of the debenture.

    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 company issued 12% debentures of Rs. 1000 each at Rs. 900 to be redeemable at Rs. 1050. The difference of Rs. 150 will be ___________.

    1. debited to loss on issue of Debenture A/ c

    2. credited to loss on issue of Debenture A/c

    3. preliminary expenses A/c

    4. capital loss A/c
    Reveal answer Fill a bubble to check yourself
    A Correct answer
    Explanation

    When debentures are issued at a discount and redeemed at a premium, the total loss is debited to the Loss on Issue of Debentures account. This account represents the total cost of borrowing over the life of the debenture.

    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

    Loss on issue of Debentures is generally written off in __________.

    1. 10 years

    2. 8 years

    3. over the period of debentures

    4. 15 years
    Reveal answer Fill a bubble to check yourself
    C Correct answer
    Explanation

    Loss on issue of debentures is a capital loss that should be amortized over the tenure of the debentures to match the expense with the benefit received.

    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

    The document inviting offers from public to subscribe for the debenture or shares or deposits of a company is a

    1. Share certificate

    2. Articles of association

    3. Fixed deposit receipt

    4. Prospectus
    Reveal answer Fill a bubble to check yourself
    D Correct answer
    Explanation

    A prospectus is the formal legal document issued by a company that invites the public to subscribe for its shares or debentures.

    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

    Debenture interest -

    1. is payable only is case of profits

    2. accumulates in case of losses or inadequate profits

    3. is payable after the payment of preference dividend but before the payment of equity dividend

    4. is payable before the payment of any dividend on shares
    Reveal answer Fill a bubble to check yourself
    D Correct answer
    Explanation

    Debenture interest is a fixed charge against profits, meaning it must be paid regardless of whether the company makes a profit or loss, and it takes precedence over dividend payments.

    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

    Which of the following statements is true?

    1. A debenture holder is an 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

    It is standard practice for companies to issue debentures at a discount while agreeing to redeem them at a premium, creating a loss on issue.

    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

    ABC Ltd. purchased Machinery from Kumar Company for a book value of Rs. 2,00,000. The consideration was paid by issue of 10% debentures of Rs. 100 each at a discount of 20%. The debenture account was credited with ____.

    1. Rs. 4,00,000

    2. Rs. 2,50,000

    3. Rs. 3,20,000

    4. Rs. 4,80,000
    Reveal answer Fill a bubble to check yourself
    B Correct answer
    Explanation

    The purchase consideration is Rs. 2,00,000. Since debentures are issued at a 20% discount, the issue price per debenture is Rs. 80 (100 - 20). The number of debentures issued is 2,00,000 / 80 = 2,500. The debenture account is credited with the face value: 2,500 * 100 = Rs. 2,50,000.