Issue and Redemption of Debentures Test 3

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Issue and Redemption of Debentures Test 3

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Weekly Quiz Competition

Question 1
1 / -0

Preference shares amounting to Rs. $$2,00,000$$ are redeemed at a premium of $$5$$% by issue of shares amounting to Rs. $$1,00,000$$ at a premium of $$10$$%. The amount to be transferred to capital redemption reserve ___________.

A
Rs. $$1,05,000$$

B
Rs. $$1,00,000$$

C
Rs. $$2,00,000$$

D
Rs. $$1,11,000$$
Question 2
1 / -0

Premium on redemption of debentures account is recorded on issue of debentures.

A
A real account

B
A nominal account-income

C
A personal account

D
A nominal account-expenditure
Question 3
1 / -0

Debentures can be redeemed out of ___________.

A
profits

B
provisions

C
capital

D
all of the above

Solution

Debentures may be redeemed out of capital, out of provisions or out of profits. Prudent companies make arrangements for the redemption of debentures from the very beginning. They set aside a certain sum of money out of profits every year and invest an equivalent amount in first class securities so that necessary funds are available for redemption of debentures at the appropriate time.
Therefore, D is the correct option.
Question 4
1 / -0

Which of the following statements is false?

A
Debenture is a form of borrowing fro public

B
Normal rate of interest on debentures is specified on issue

C
Debenture interest is a charge against profits

D
The issue price and redemption value of debentures will always be equal
Question 5
1 / -0

Premium on redemption of debenture A/c is a _____.

A
personal A/c

B
real A/c

C
nominal A/c

D
suspense A/c

Solution

Premium on redemption of debentures is shown under liabilities side of the Balance Sheet, so, it is a personal account. This premium is payable by the company on redemption of the debentures to the debenture-holders.
Question 6
1 / -0

Debentures premium cannot be used to ____________.

A
write off the discount on issue of shares or debentures

B
write off the premium on redemption of shares or debentures

C
pay dividends

D
write off capital loss
Question 7
1 / -0

For a share of $$Rs. 20$$ on which $$Rs. 1.6$$ has been called but $$Rs. 10$$ has been paid is forfeited, the share capital account should be debited by ___________.

A
$$Rs. 20$$

B
$$Rs. 10$$

C
$$Rs. 16$$

D
None of these
Question 8
1 / -0

In the Balance Sheet of a company, Debenture Premium Account appears under the head:

A
Share Capital

B
Reserves & Surplus

C
Non-Current Liabilities

D
Current Liabilities

Solution

Debentures are said to be issued at a premium when the amount collected for it, is greater than the nominal value (face value) of the debentures. Such premium is a capital profit and is presented in the balance sheet of the company under the head ‘Reserves and Surplus’.
Question 9
1 / -0

Convertible Debentures are those debentures which are -

A
convertible into equity only at the point of debenture holders.

B
convertible into equity shares only at the option of company only.

C
convertible into equity shares only at the option of debenture holders or company.

D
convertible into any securities at the option of debenture holders or company.

Solution

A convertible debenture is a type of long-term debt issued by a company that can be converted into stock after a specified period. Convertible debentures are usually unsecured bonds or loans meaning that there is no underlying collateral connected to the debt.
Question 10
1 / -0

A Ltd. took over the assets of Rs$$3,00,000$$ and liabilities of Rs$$10,000$$ of B Ltd. for an agreed purchase consideration of Rs$$2,70,000$$ to be satisfied by the issue of $$15\%$$ Debentures of Rs$$100$$ each at $$20\%$$ premium. Considering this, which of the following sentences is true?

A
Goodwill A/c is to be debited with Rs $$20,000$$

B
Capital Reserve A/c is to be debited with Rs $$20,000$$

C
Goodwill A/c is to be credited with Rs $$20,000$$

D
Capital Reserve A/c is to be credited with Rs $$20,000$$

Solution

For the given purchase transaction, the following journal entry will be made in the books of A Ltd.:
=> Assets A/c Dr. 3,00,000
To Liabilities A/c 10,000
To Purchase Consideration 2,70,000
To Capital Reserve 20,000
Hence, option (d) is correct.

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Issue and Redemption of Debentures Test 3

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Question 1

Rs. $$1,05,000$$

Rs. $$1,00,000$$

Rs. $$2,00,000$$

Rs. $$1,11,000$$

Question 2

A real account

A nominal account-income

A personal account

A nominal account-expenditure

Question 3

profits

provisions

capital

all of the above

Solution

Question 4

Debenture is a form of borrowing fro public

Normal rate of interest on debentures is specified on issue

Debenture interest is a charge against profits

The issue price and redemption value of debentures will always be equal

Question 5

personal A/c

real A/c

nominal A/c

suspense A/c

Solution

Question 6

write off the discount on issue of shares or debentures

write off the premium on redemption of shares or debentures

pay dividends

write off capital loss

Question 7

$$Rs. 20$$

$$Rs. 10$$

$$Rs. 16$$

None of these

Question 8

Share Capital

Reserves & Surplus

Non-Current Liabilities

Current Liabilities

Solution

Question 9

convertible into equity only at the point of debenture holders.

convertible into equity shares only at the option of company only.

convertible into equity shares only at the option of debenture holders or company.

convertible into any securities at the option of debenture holders or company.

Solution

Question 10

Goodwill A/c is to be debited with Rs $$20,000$$

Capital Reserve A/c is to be debited with Rs $$20,000$$

Goodwill A/c is to be credited with Rs $$20,000$$

Capital Reserve A/c is to be credited with Rs $$20,000$$

Solution

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