Tag: book keeping and accountancy

Questions Related to book keeping and accountancy

Advantage of debt financing is:

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. Interest is tax-deductible

  2. It reduces WACC

  3. Does not dilute owners control

  4. All of the above

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Correct Option: D
Explanation:

Advantages of Debt Financing over equity are:

1) Tax advantage: The amount you pay in interest is tax deductible.
2) Retains Ownership- With debt financing you don't have togive out a stake in your company.
3) Reduces WACC- The cost of debt is the interest rate applied on loans borrowed from bank and Non-banking financial institutions. A company can reduce its WACC by cutting debt financing costs.

Tax-rate is relevant and important for calculation of specific cost of capital of ____________.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. Equity Share Capital

  2. Preference Share Capital

  3. Debentures

  4. Both A and B

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Correct Option: C
Explanation:

In case of debenture, interest payable is the cost of capital. Interest on debenture is tax deducible and charged to profit & loss account as an expense. It reduces the tax liability of the business. 

Tax rate is relevant and important for calculation of cost of capital for debenture. 

___________ are those debentures where the debenture holder have option to convert into equity.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. Optional debentures

  2. Flexible debentures

  3. Convertible debentures

  4. Non-convertible debentures

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Correct Option: C

Debenture holders are like ___________ of the company.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. owners

  2. debtors

  3. creditors

  4. promoters

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Correct Option: C

If a 2 - year redeemable bond is purchased and held till maturity , the rate of return earned is called ______________.

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

  1. Coupon rate

  2. Required rate of return

  3. Yield to maturity

  4. Current yield

  5. Either (B) or (D) above

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Correct Option: C

Which of the following can be utilized for redemption of preference shares?

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

  1. The proceeds of fresh issue of debentures

  2. The proceeds of issue of fixed deposits

  3. The sale proceeds of investments

  4. Both (a) and (b)

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Correct Option: A

The Securities Premium amount may be utilised by a company for

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

  1. Writing off any loss on sale of fixed asset

  2. Writing off any loss of revenue nature

  3. writing off the expenses/ discount on the issue of debentures

  4. None of the above

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Correct Option: C

In case of an issue of a debenture of Rs$100$ at Rs$100$ but redeemable at Rs$106$, Rs$6$ is to be:

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

  1. Debited to Debenture Redemption Premium Account

  2. Credited to Loss on Issue of Debentures Account

  3. Debited to Loss on Issue of Debentures Account

  4. Debited to Discount on Issue of Debentures Account

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Correct Option: C

Which of the following is false with respect to debentures?

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

  1. These can be issued for cash

  2. These can be issued for consideration other than cash

  3. These can be issued as collateral security

  4. These can be issued in lieu of dividends

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Correct Option: D

Which of the following is/are true with respect to debentures?

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

  1. They can be issued for cash

  2. They can be issued for consideration other than cash

  3. These can be issued as collateral security

  4. Both (a) and (b) above

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Correct Option: D