Tag: issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Questions Related to issue of debentures at par, premium, discount, collateral security and for consideration other than cash

Which of the following is true regarding 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 a consideration other than cash

  3. They cannot be issued as collateral security

  4. Both (a) and (b)

Show answer
Correct Option: D

Which of the following is false?

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. A company can issue redeemable debentures

  2. A company can issue debentures with voting rights

  3. A company can issue convertible debentures

  4. A company can buy its own debentures and shares

Show answer
Correct Option: B

The following journal entry appears in the books of X Co. Ltd. The debentures have been issued at.

Dr. (Rs.) Cr. (Rs.)
Bank A/c $96,000$
Loss on issue of debentures A/c $10,000$
To $8\%$ debentures A/c $1,00,000$
To premium on redemption of debentures A/c $6,000$
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. Discount of $4\%$

  2. Discount of $6\%$

  3. Premium of $6\%$

  4. Discount of $10\%$

Show answer
Correct Option: A

Which of the following is false regarding 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 to vendors

  2. They can be issued for consideration other than cash

  3. They can be issued as collateral security

  4. They can be issued in lieu of dividends

Show answer
Correct Option: D

Debenture premium cannot be used to.

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. Write off the discount on issue of shares or debentures

  2. Write off the premium on redemption of shares or debentures

  3. Pay dividends

  4. Write off capital loss

Show answer
Correct Option: C

When debentures are issued as collateral security, the final entry for recording the transaction in the books is ________________.

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. Credit debentures A/c and debit cash A/c

  2. Debit debentures suspense A/c and credit cash A/c

  3. Debit cash A/c and credit the loan A/c for which security is given

  4. Debit debentures A/c and credit the loan A/c for which security is given.

Show answer
Correct Option: C
Explanation:

When debentures are issued as a collateral security there are two treatments in the accounting books. 

One of the methods is where no journal entry is made in the account books at the time of issue of such debentures. Hence, only the entry of loan is to be passed.

Hence, C is the correct option.

W Ltd. issued $20,000$, $8\%$ debentures of Rs. $10$ each at par, which are redeemable after $5$ years at a premium of $20\%$. The amount of loss on redemption of debentures to be written off every year will 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. Rs. $40,000$

  2. Rs. $10,000$

  3. Rs. $20,000$

  4. Rs. $8,000$

Show answer
Correct Option: D

Debentures of a company can be issued :

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. For cash

  2. For consideration other than cash

  3. As a collateral security

  4. Any of the above

Show answer
Correct Option: D

On issue of debentures as a collateral security, which account is creadited?

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. Debentures Account

  2. Bank Loan Account

  3. Debenture holdings Account

  4. Debenture Suspense Account

Show answer
Correct Option: A
Explanation:

Collateral security means security provided to the lender over and above the prime or principal security. Collateral security is to be realized only when the principal security fails to pay the amount of loan.
Debentures Suspense A/c                          Dr.
To Debentures A/c

Which of the following is not a characteristic of Bearer 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 are treated as negotiable instruments.

  2. Their transfer requires a deed of transfer.

  3. These are transferable by mere delivery

  4. The interest on it is paid to the holder.

Show answer
Correct Option: B