Sources of Business Finance Test

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Sources of Business Finance Test - 36

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Weekly Quiz Competition

Question 1
1 / -0

Debenture holders are the _________of the company.

A
Creditors

B
Owners

C
Quasi

D
Deemed owner

Solution

A creditor is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed.^[1] The first party, in general, has provided some property or service to the second party under the assumption (usually enforced by contract) that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money.
Creditors can be broadly divided into two categories: secured and unsecured. A secured creditor has a security or charge, which is some or all of the company’s assets, to secure the debt owed to him. This could be, for example, a mortgage, where the property represents the security. An unsecured creditor does not have a charge over the company’s assets.
Question 2
1 / -0

Debentures ______________ forfeited for non-payment of call moneys.

A
Can be

B
Cannot be

C
Both (A) & (B)

D
None of above

Solution

Generally total face value of debenture is demanded by company in installments I.e. Debenture application, Debenture allotment and Debentures calls accounts. It is usual that some of the debenture-holders fail to pay the amount of different installments when these are demanded by company. Such unpaid calls (installments) are called ‘Calls in arrears’. Under the provisions of Companies Act, 1956 debentures cannot be forfeited by company.

Because under section 122 of the Companies Act 1956 a contract with a company to take up and pay for any debenture may be enforced by a decree for specific performance. For the realisation of calls in arrears on debentures the company can only file a suit in the court. Company can charge interest on calls-in-arrears as provided in prospectus.

Sometimes, certain debenture-holders pay money against those calls also which have not yet en demanded by company. In such cases the amount received is credited to calls in advance account. If provided in prospectus, the company pays interest on this amount to debenture-holders at a specified rate. Interest is always calculated for the period, the advance has been received.
Question 3
1 / -0

As per RBI's Old Classification, M4 refers to -

A
Coins and Currency Notes + Demand Deposits of the Public with Commercial Banks

B
Coins and Currency Notes + Demand Deposits with Commercial Banks Post Office Saving Deposits

C
Coins and Currency Notes + Demand Deposits & Time Deposits with Commercial Banks

D
Coins and Currency Notes + Demand Deposits & Time Deposits with Commercial Banks + All Post Office Deposits
Question 4
1 / -0

As per section 2(51) of the Companies Act, 2013, "Key Managerial Personnel", in relation to a company, means _______.
(i) Chief Executive officer or managing director or manager
(ii) Company Secretary
(iii) General Manager
(iv) Whole Time Director
(v) Chief Legal Officer
(vi) Chief Financial Officer
The correct answer is -

A
(i), (ii), (iv) & (vi)

B
(i), (iii), (iv), (v) & (vi)

C
(i), (ii), (v) & (vi)

D
(i), (iv), (v) & (vi)
Question 5
1 / -0

The company may allot debentures to the vendors for a acquiring some assets as payment for purchase consideration, such issue of debentures to vendors is known as issue of debentures for _______.

A
Cash

B
Consideration other than cash

C
With consideration

D
Without consideration

Solution

Issue of Debentures for Consideration other than Cash
Debentures can be issued for non-cash considerations. The company may have purchased assets from some vendors or acquired some other business. Then instead of paying cash, the company may issue debentures to such vendors. Such an issue for debentures can be at par, or for a discount or at a premium.
Question 6
1 / -0

If the value of debentures allotted to vendors for acquiring some assets as payment for purchase consideration is more than the agreed purchase price, the difference is credited to __________.

A
Capital reserve account

B
Debenture suspense account

C
Goodwill account

D
Profit & loss account
Solution
Goodwill Account-
- Sometimes a company purchases some assets and liabilities from the vendor and purchase consideration (amount of payment) is determined in advance.
- Payment is made by issuing debentures by the company; it is called issue of debentures for consideration other than cash. Such issue of debentures may be at par, discount or premium.
- The entry for acquisition of assets & liabilities and issuance of debenture is shown as above:
   a. Assets A/c                     Dr.

    To Liabilities A/c

      To Vendor’s A/c

         (Purchase of assets & liabilities from vendor)

         b. Vendor’s A/c                Dr.

                   To Debentures A/
(Issue of debentures to vendors)
- In such cases, if purchase consideration is more than assets & liabilities acquired then the difference is goodwill and amount of difference to “Goodwill A/c” which is calculated as below:
Goodwill= Purchase consideration- Assets acquired- Liabilities taken over
- The entry of goodwill will be as shown below:
           Assets A/c                     Dr.
           Goodwill A/c                 Dr.

                     To Liabilities A/c

                     To Vendor’s A/c

         (Purchase of assets & liabilities from vendor)
Question 7
1 / -0

Debentures may be issued by a company for ________.

A
Cash

B
Consideration other than cash

C
As a collateral security

D
Any of above

Solution

Issue of Debentures for Cash :-
Debentures in the general course of business are issued for cash. This issue of debentures that happens can be of three kinds, just like an issue of shares, at par, at a discount, and at a premium. So let us take a look at all three and their respective accounting entries as well.

Issue at Par :-
Here the debentures will be issued exactly at their nominal price, i.e. not above or below the face value of the debentures. Now the company can decide to collect the cash all at once, in a lump sum. Or the money will be collected in installments, like with allotment, first call, second call, last call etc.

Issue at Discount :-
When the debentures are issued at below face value, such issue of debentures is known as a discount issue. Like, say for example the debenture has a nominal value of 100/- but is issued for 90/-. Then such debentures are said to be issued at discount.
Discount on issue of debentures is treated as a capital loss and put under “Miscellaneous Expenses” on the asset side of the balance sheet until it can be written off. Then during the life of the debentures, such discount amount is written off by debiting it to the Profit and Loss A/c. It can also be charged against the Capital Profits of the company.

Issue at Premium:-
Now we come to the issue of debentures at a premium, that is when more money than the nominal value is charged. So if a debenture with a face value of 100/- is sold at 110/- then it is issued at a premium. The amount of the premium is charged to a special account known as Securities Premium Reserve Account. This account will be shown on the liabilities side of the Balance Sheet under the heading of Reserves and Surplus.

Issue of Debentures for Consideration other than Cash :-
Debentures can be issued for non-cash considerations. The company may have purchased assets from some vendors or acquired some other business. Then instead of paying cash, the company may issue debentures to such vendors. Such an issue for debentures can be at par, or for a discount or at a premium.

Issue of Debentures as Collateral Security :-
Debentures can also be issued by a company as collateral security against a bank loan or any such borrowings. A collateral security is like a parallel security which is provided along with the actual security against the loan taken. Debentures issued as such a collateral liability are a contingent liability for the company, i.e. the liability may or may not arise. Only when the company defaults on such a loan will this liability arise.
Question 8
1 / -0

Discount on issue of debentures is ____________.

A
Revenue loss

B
Capital profits

C
Capital loss

D
Capital receipt

Solution

Capital Loss :-

A capital loss is the loss incurred when a capital asset, such as an investment or real estate, decreases in value. This loss is not realized until the asset is sold for a price that is lower than the original purchase price.
Capital losses are generally tax deductible, but only when they are realized. That is, they only become deductible when the asset is actually sold (unless the stock is legally deemed worthless). Until that point, any losses are considered unrealized and are not deductible.
The IRS considers nearly every asset owned by individuals and companies as capital assets and thus subject to capital gains taxes and capital loss deductions.
Question 9
1 / -0

Before nationalisation, the commercial Banks in India neglected certain Sectors. Identify them.

A
Agriculture

B
Small Scale Industries

C
Economically Weaker sections of the society

D
All of the above
Question 10
1 / -0

In the context of Commercial Banks, NPA refers to -

A
Naturally Performing Asset

B
Non-Performing Asset

C
Neatly Performing Asset

D
None of the above

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Sources of Business Finance Test - 36

Result

Sources of Business Finance Test - 36

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Rank

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SHARING IS CARING

Question 1

Creditors

Owners

Quasi

Deemed owner

Solution

Question 2

Can be

Cannot be

Both (A) & (B)

None of above

Solution

Question 3

Coins and Currency Notes + Demand Deposits of the Public with Commercial Banks

Coins and Currency Notes + Demand Deposits with Commercial Banks Post Office Saving Deposits

Coins and Currency Notes + Demand Deposits & Time Deposits with Commercial Banks

Coins and Currency Notes + Demand Deposits & Time Deposits with Commercial Banks + All Post Office Deposits

Question 4

(i), (ii), (iv) & (vi)

(i), (iii), (iv), (v) & (vi)

(i), (ii), (v) & (vi)

(i), (iv), (v) & (vi)

Question 5

Cash

Consideration other than cash

With consideration

Without consideration

Solution

Question 6

Capital reserve account

Debenture suspense account

Goodwill account

Profit & loss account

Solution

Question 7

Cash

Consideration other than cash

As a collateral security

Any of above

Solution

Question 8

Revenue loss

Capital profits

Capital loss

Capital receipt

Solution

Question 9

Agriculture

Small Scale Industries

Economically Weaker sections of the society

All of the above

Question 10

Naturally Performing Asset

Non-Performing Asset

Neatly Performing Asset

None of the above

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