Tag: procedure for issue of debentures

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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

XYZ Ltd. issued $4,000$ $12\%$ Debentures of Rs. $100$ each on $1.4.05$. Interest is payable on $30$th June and $31$st December each year. Company deducts Income Tax @$10\%$ on interest. What is the net amount of interest paid to Debenture holders on $30.6.05$?

  1. Rs. $24,000$

  2. Rs. $12,000$

  3. Rs. $10,800$

  4. Rs. Nil
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

If the whole amount of debenture is received in one installment, then the journal entry for making the allotment is:

  1. Debit Debenture a/c. and Credit Debenture application & allotment a/c.

  2. Debit Debenture application & allotment a/c. and credit Debenture a/c

  3. Both (A) and (B)

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

Debentures may be issued at par, premium, or at discount. They can also be issued for consideration other than cash or as collateral security. Debentures are said to be issue at par when face value equals the issue price of the debenture, the journal entry for such issue is as follows:

 If whole amount is received in one installment:
Bank A/c                         Dr.
     To Debenture application and allotment A/c

Debenture application and allotment A/c             Dr.
      To Debentures A/c

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 statement is true?

  1. Debentures bear fixed interest

  2. Interest on debenture is an appropriation of profit

  3. Debenture holders have voting right

  4. Debentures cannot be issued for consideration other than cash
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Debentures are debt instruments, and the interest rate is fixed at the time of issue. They do not carry voting rights, and interest is a charge, not an appropriation.

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

XY Ltd. has issued $12\%$ Debentures on $1.4.05$ for Rs. $4,00,000$. Interest is payable on $30$th June and $31$st Dec. every year. Amount of outstanding Interest on $31.3.06$ will be.

  1. Rs. $48,000$

  2. Rs. $36,000$

  3. Rs. $12,000$

  4. Rs. $6,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The interest is calculated on the face value of Rs. 4,00,000 at 12% per annum. From 1.1.06 to 31.3.06 (3 months), the interest accrued is 4,00,000 * 0.12 * (3/12) = 12,000.

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

F Ltd. purchased Machinery from G Company for a book value of Rs. $4,00,000$. The consideration was paid by issue of $10\%$ debentures of Rs. $100$ each at a discount of $20\%$. The debenture account will be credited by.

  1. Rs. $4,00,000$

  2. Rs. $5,00,000$

  3. Rs. $3,20,000$

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

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

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

Textile Ltd. has issued debentures carrying a coupon rate of $12\%$ at a discount of $20\%$. The effective rate of interest for company will be ______ .

  1. $12\%$

  2. $15\%$

  3. $10\%$

  4. $9\%$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Company has issued debentures at a discount of $20\%$ i.e., a debenture of Rs. $100$ has been issued at Rs. $80$. But it will pay interest on face value of Rs. $100$. Therefore, effective rate of discount will be $12/80\times 100=15\%$

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

T Ltd. has issued $15\%$ Debentures of Rs. $20,00,000$ at a discount of $10\%$ on April $01$, $2004$ and the company pays interest half-yearly on June $30$ and December $31$ every year. On March $31$, $2006$, the amount shown as "interest accrued but not due" in the Balance Sheet will be.

  1. Rs. $75,000$

  2. Rs. $2,25,000$

  3. Rs. $1,50,000$

  4. Rs. $3,00,000$
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Interest is paid half-yearly on June 30 and Dec 31. On March 31, 2006, interest for 3 months (Jan, Feb, March) has accrued but is not yet due. Interest = 20,00,000 * 15% * (3/12) = 75,000.

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

On May $01$, $2005$ U Ltd. issued six per cent, $10,000$ convertible debentures of Rs. $100$ each at a premium of $20\%$ Interest is payable on September $30$ and March $31$ every year. Assuming that the interest runs from the date of issue, the amount of interest expenditure debited to profit and loss account for the year ended March $31$, $2006$, will be.

  1. Rs. $66,000$

  2. Rs. $72,000$

  3. Rs. $60,000$

  4. Rs. $55,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest is calculated on the face value of 10,000 * 100 = 10,00,000. The rate is 6%. Interest for the year (May 1 to March 31 is 11 months) = 10,00,000 * 0.06 * (11/12) = 55,000.

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

On May $01$, $2003$, Y Ltd. issued $7\%$ $40,000$ convertible debentures of Rs. $100$ each at a premium of $20\%$. Interest is payable on September $30$ and March $31$, every year. Assuming that the interest runs from the date of issue, the amount of interest expenditure debited to profit and loss account for the year ended March $31$, $2004=?$

  1. Rs. $2,80,000$

  2. Rs. $2,33,333$

  3. Rs. $3,36,000$

  4. Rs. $2,56,667$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Face value = 40,000 * 100 = 40,00,000. Interest rate = 7%. Period from May 1, 2003 to March 31, 2004 is 11 months. Interest = 40,00,000 * 0.07 * (11/12) = 2,56,666.67, rounded to 2,56,667.

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

T Ltd. purchased land and building from U Ltd. for a book value of Rs. $3,00,000$. 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. $3,00,000$

  2. Rs. $3,75,000$

  3. Rs. $3,60,000$

  4. Rs. $2,40,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Consideration = 3,00,000. Issue price = 100 - 20% = 80. Number of debentures = 3,00,000 / 80 = 3,750. Debenture account is credited with face value: 3,750 * 100 = 3,75,000.