Tag: procedure for issue of debentures

Questions Related to procedure for issue of debentures

Which of the following statements is false?

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

  1. Debenture is a form of public borrowing

  2. It is customary to prefix debentures with the agreed rate of interest

  3. Debenture interest is a charge against profits

  4. The issue price and redemption value of debentures cannot differ.

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Correct Option: D

Discount Issue of Debenture a-

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

  1. Personal Account

  2. Real Account

  3. Nominal Account

  4. None of these

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Correct Option: C

Which of the following is true with regard to $10\%$ Debentures issued at a discount of $20\%$?

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

  1. The carrying amount of debentures get reduced each year at a rate of $20\%$

  2. Issue price and the carrying amount of debenture are equal

  3. At the time of redemption, the debenture holder will be paid the issued price.

  4. The carrying amount of debentures remain the same.

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Correct Option: D

Interest on Debentures is calculated on -

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

  1. Its face value

  2. Its issue price

  3. Its book value

  4. Its cost price

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Correct Option: A
Explanation:

The interest is calculated on the face value of the debentures. This interest amount is paid periodically, generally yearly or half-yearly. The interest is a charge against the profit of the company.

State, with reasons, whether the following statements are True and False.
Share transfer in depository mode is fast and economical.

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

  1. True

  2. False

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Correct Option: A
Explanation:

True 
Reasons: 
(1) Dematerialization is the process by which securities like shares are converted into electronic form from physical form. 
(2) It results in paperless procedures with respect to holding of shares, handling them or transferring them. 
(3) It is an account based system where the dealings happen electronically and not physically. It saves a lot of time, efforts and hassles. 
(4) It results in very fast and quick transactions due to direct credit. 
(5) This also leads to minimizing cost. 
(6) Payments in case of transfer, dividend etc. also happen much faster. 
(7) So demat is a very simple, easy and time saving process.Thus, share transfer in depository mode is fast and economical.

When debentures are issued at par but are redeemable at premium, the entry is:

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
  1. Bank Account DebenturesPremium on redemption of debentures Dr.  Cr.Cr. 
  2. Bank Account DebenturesLoss on the issue of debenture  Dr.  Cr. Cr.
  3. Bank Account Loss on the issue of debenture DebenturePremium on redemption of debentures Dr.  Cr. Cr.Cr.

  4. None of the above

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Correct Option: C

Interest on debenture is __________.

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

  1. An Appropriation of Profit

  2. A Charged Against Profit

  3. An Adjustment of Profit

  4. None of the Above

Show answer
Correct Option: B
Explanation:

Debenture are financial instrument which carries a certain percentage of interest. Debentures are like other debts. Interest paid on debenture is an expense and charged to profit & loss account.

Statement (A): Discount on issue of debentures represents capital loss.
Statement (B): The amount of such discount cannot be written off annually

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

  1. Both (A) and (B) are true.

  2. Both (A) and (B) are false.

  3. (A) is correct but (B) is false

  4. (B) is correct but (A) is false

Show answer
Correct Option: C

When debentures are issued at a discount but are redeemable at a premium the entry is:

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
  1. Bank Account Discount on Debentures accountDebentures Dr.  Cr. Cr.
  2. Bank Account Discount on Debentures accountDebenturesPremium on redemption of debentures Dr.  Cr. Cr.Cr.
  3. Bank Account Loss on the issue of debenturesDebenturesPremium on redemption of debentures Dr.  Cr. Cr.Cr.

  4. None of the above

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Correct Option: C

What journal entry is passed, when the interest on debentures is due?

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
  1.  Debentures Interest A/c        To Debentureholder's A/c Dr. 
  2.  Debentures Interest A/c        To Debentureholder's A/c        To Tax deducted at source A/c Dr. 
  3. Debentureholder's A/cTax deducted at source A/c     To Debenture Interest A/c Dr. Dr.

  4. None of the above

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Correct Option: B