Tag: debentures

Questions Related to debentures

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to____________.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Profit and loss A/c

  2. General reserve A/c

  3. Debenture A/c

  4. Cash A/c

Show answer
Correct Option: B
Explanation:

The balance of the Debentures Sinking Fund after redemption of debentures is transferred to General Reserve account. It is the amount which is kept separately out of redeemed amount from debentures, that is why it is transferred to general reserve account.

Debentures redeemable after 10 years of issue are shown as___________.

commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Long-term borrowings

  2. Other long-term liabilities

  3. Short-term borrowings

  4. Other short-term liabilities

Show answer
Correct Option: A
Explanation:

Debentures redeemable after 10 years of issue are shown as long-term borrowings since debenture holders invest for a long period of time. Debentures refer to the liabilities of the company that will not become due within one year.

Arpana Pvt Ltd provide following information:
Sales = 10,00,000
Variable cost = 7,00,000
Fixed cost = 2,00,000
Debentures at $10\%$ = 5,00,000
What is the operating leverage of the company? 

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. 2

  2. 3

  3. 4

  4. 5

Show answer
Correct Option: B
Explanation:

Operating leverage = $\frac{Contribution}{EBIT}$
=  $\frac{Rs.3,00,000}{Rs.1,00,000}$
= 3

Debentures are preferred by investors who want _______ income at __________ risk.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. fluctuating, lesser

  2. fixed, lesser

  3. fixed, higher

  4. fluctuating, higher

Show answer
Correct Option: B
Explanation:
The difference between the face value of the debenture and its purchase price is the return to the investor. Hence it is preferred by investors who want fixed income at lesser risk. There is a greater risk when the earnings of the company fluctuate.

Public issue of debentures requires that the issue be rated by a credit rating agency like _____.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. SBI

  2. RBI

  3. SEBI

  4. CRISIL

Show answer
Correct Option: D
Explanation:

Public issue of debentures requires that the issue be rated by a credit rating agency like CRISIL. CRISIL is a global company which mainly provdes ratings to the companies.

_______ issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Interest Certificate

  2. Share Certificate

  3. Debenture

  4. Demat Certificate

Show answer
Correct Option: C
Explanation:

Debenture issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date. It is a long term security. Fixed interest is earned by issuing the debentures.

Mahindra and Mahindra was the first company in India to issue convertible Zero Interest Debentures in January 1990.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Mahindra and Mahindra was the first company in India to issue convertible Zero Interest Debentures in January 1990- this is a true statement. Convertible debentures earns no interests. Mahindra and Mahindra is an MNC of India which deals with car manufacturing.

Debenture holders are termed as __________ of the company.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. debtors

  2. creditors

  3. traders

  4. consumers

Show answer
Correct Option: B
Explanation:
 The debenture issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date. Debenture holders are, therefore,termed as creditors of the company.

Debentures are an important instrument for raising _______ term debt capital.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. short

  2. long

  3. medium

  4. none of the above

Show answer
Correct Option: B
Explanation:

Debentures are an important instrument for raising long term debt capital. a debenture issued by a company represents that the company has borrowed some amount of capital and the company promises to return them on a fixed rate of interest.

A company can raise funds through issue of debentures, which bear a ________ rate of interest.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. fixed

  2. fluctuating

  3. higher

  4. lower

Show answer
Correct Option: A
Explanation:

Debentures can be issued by a company to raise funds as long term debt capital, which the company promises to return back on a fixed rate of interest.