Tag: meaning and features of debentures

Questions Related to meaning and features of debentures

Shares and debentures of blue chip companies are ___________ .

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

  1. Money market investment

  2. Capital market investment

  3. Gilt-edged securities

  4. Any of these depending on certain factors

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Correct Option: B

On 1st April, 2013, Y Ltd. Issued 1000, 12% debentures of Rs. 100 each at a discount of 6%. These debentures are redeemable in five equal annual instalments at the end of each year. What is the amount of discount to be written off in the first year i.e.

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

  1. Rs. 2000

  2. Rs. 1800

  3. Rs. 1200

  4. Rs. 600

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Correct Option: C

____________ Debentures are to be redeemed on the expiry of a certain period.

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

  1. Redeemable

  2. Irredeemable

  3. Convertible

  4. Non-convertible

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Correct Option: A

Debentures can be redeemed by :

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

  1. Purchase of own debentures in the open market

  2. Converting them into new class of debentures

  3. Converting them into shares

  4. Any of the methods mentioned in (A), (B) and (C)

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Correct Option: D

The premium on issue of shares (whether received in cash or in kind) is a:

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

  1. Revenue receipt

  2. Capital receipt

  3. Neither revenue nor capital receipt

  4. Both revenue and capital receipts

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Correct Option: B

The formula of earning per share is ___________.

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

  1. $\dfrac {\text {Market price per equity share}}{\text {Number of shares}}$

  2. $\dfrac {\text {Gross profit}}{\text {Net sales}}\times 100$

  3. $\dfrac {\text {Operating costs}}{\text {Net sales}}\times 100$

  4. $\dfrac {\text {Net profit after tax and preference dividend}}{\text {Number of Equity shares}}$

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Correct Option: D
Explanation:

Earning per share is the portion of a company's profit allocated to each outstanding share of the common stock. It serves as an indicator of the company's profitability. It is calculated by dividing the market price per equity share by no. of shares.

When business is sold to company, shares and debentures received are distributed in:

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

  1. The profit sharing ratio

  2. Equal ratio

  3. The ratio of their capitals standing before profit or loss on realization has been transferred

  4. The ratio of their capitals standing after profit or loss on realization has been transferred

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Correct Option: D
Explanation:

Whatever the company pays as consideration will be credited to the Realisation Account. If expenses are incurred by the firm, the amount will be debited to the Realisation Account. If the creditors are taken over by the company, no further treatment is necessary beyond transferring them to the credit of Realisation Account; but if creditors are to be paid by the firm, the actual amount paid to them will be debited to liability account concerned; the difference between the book figure and the amount actually paid will be transferred to Realisation Account. The profit or’ loss on realisation will be transferred to the capital accounts in the profit-sharing ratio.

'Premium on Redemption of Debentures Account' is a:

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

  1. Personal Account

  2. Real Account

  3. Nominal Account

  4. None of the above

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Correct Option: A
Explanation:

Premium on redemption of debentures is a personal account and it is a liability of the company which is payable on redemption.

Given following data calculate cost of capital under Net Income (NI) Approach 
(1) EBIT is Rs. 20 Lakhs.
(2) 4,00,000 shares of Rs. 10 each & market capitalisation is $16\%$ 
(3) 25,000, $14\%$ debentures of Rs. 150 each.

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

  1. $16\%$

  2. $14\%$

  3. $15\%$

  4. $15.42\%$

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Correct Option: D
Explanation:

First calculate net earnings available to equity shareholders deducting interest on debt i.e. NI then calculate market value of equity i.e. $\frac{NI}{K _e}$ where $k _e$ = market capitalization rate then value of firm V = S + B lastly $K _e$ = $\frac{EBIT}{V}$.

Non-convertible debentures are ________________.

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

  1. debt instruments which acquire equity status at the issuers option

  2. debt instruments which retain their debt character and cannot acquire equity status

  3. debt instruments which acquire equity status with the permission of Registrar of Companies

  4. debt instruments which acquire equity status on maturity

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Correct Option: B