Issue and Redemption of Debentures Test 4

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Issue and Redemption of Debentures Test 4

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Weekly Quiz Competition

Question 1
1 / -0

Capital redemption reserve account is prepared when ___________.

A
redemption is done out of issue of fresh shares

B
redemption is done out of profits of the company

C
redemption is done through company's capital fund

D
All of the above
Question 2
1 / -0

Debenture 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 underwriting commission

Solution

Debenture premium can be used to write off the discount on issue of shares or debentures, write off the premium on redemption of shares or debentures, and write off capital losses. Such premium may also be used to write off underwriting commission but it cannot be used to pay dividends.
Question 3
1 / -0

Debenture Redemption Premium Account is a -

A
Personal Account

B
Real Account

C
Nominal Account

D
None of these

Solution

Premium on redemption of debentures is a personal account and it is a liability of the company which is payable on redemption.
Question 4
1 / -0

Which of the following is not true about Debenture Redemption Reserve(DRR)?

A
DRR created @ 50% of the amount of debentures issued before commencement of redemption

B
Withdrawal from DRR can be made only after 10% of debenture liability has been redeemed

C
DRR is required in case of fully convertible debenture

D
DRR is not required in case of debentures with a maturity period of 18 months or less
Question 5
1 / -0

If preference share are redeemed at premium, then such premium may be provided out of the ____________.

A
share premium account

B
share capital account

C
provision for tax

D
capital Redemption Reserve account
Question 6
1 / -0

Preference share to be redeemed $$Rs. 2,00,000$$ at a premium of $$5$$%. Shares issued of $$Rs. 1,00,000$$ at a premium of $$10$$%. The amount to be transferred to capital redemption reserve is _________.

A
$$Rs. 1,00,000$$

B
$$Rs. 1,10,000$$

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

D
$$Rs. 1,05,000$$
Question 7
1 / -0

A retail store sold gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following?
1. Redemption of certificates
2. Lapse of certificates

A
Decrease, Decrease

B
Decrease, No effect

C
Increase, Decrease

D
No effect : No effect

Solution

When gift certificates are issued to customers a Deferred Revenue account is created as a liability to sale merchandise in future in exchange for those certificates. When such certificates are redeemed by the customers, the amount of deferred revenue is decreased because such revenue is now realised. Similarly, when the certificates lapse, the deferred revenue account is decreased to reduce the business's future liability.
Question 8
1 / -0

Debentures cannot be redeemed out of :

A
Profits

B
Provision

C
Capital

D
All the above

Solution

Debentures can be written-off either by debiting it to profit and loss or to Debentures cannot be issued at a premium and redeemable at par.
Question 9
1 / -0

The Debenture Redemption Reserve account appears on the liability side of the balance sheet under the head ___________.

A
capital

B
reserves and surplus

C
non-current liabilty

D
current liability

Solution

Debenture Redemption Reserve (DRR) is a fund maintained by companies that have issued debentures to minimise the risk of default on repayment of debentures. It is shown on the liabilities side of the balance sheet under the head Reserves and Surplus.
Question 10
1 / -0

Debentures can be redeemed _____________.

A
At par

B
At premium

C
At discount

D
Both (a) and (b)

Solution

Once debentures are redeemed, the issuing company discharges its share of liability and takes it out from the balance sheet. Resultantly, businesses build a robust provision out of their gains and accumulate capital for reclaiming debentures. Debentures can either be redeemed at premium or par.
Therefore, D is the correct option.

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Issue and Redemption of Debentures Test 4

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Issue and Redemption of Debentures Test 4

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Question 1

redemption is done out of issue of fresh shares

redemption is done out of profits of the company

redemption is done through company's capital fund

All of the above

Question 2

write off the discount on issue of shares or debentures

write off the premium on redemption of shares or debentures

pay dividends

write off underwriting commission

Solution

Question 3

Personal Account

Real Account

Nominal Account

None of these

Solution

Question 4

DRR created @ 50% of the amount of debentures issued before commencement of redemption

Withdrawal from DRR can be made only after 10% of debenture liability has been redeemed

DRR is required in case of fully convertible debenture

DRR is not required in case of debentures with a maturity period of 18 months or less

Question 5

share premium account

share capital account

provision for tax

capital Redemption Reserve account

Question 6

$$Rs. 1,00,000$$

$$Rs. 1,10,000$$

$$Rs. 2,00,000$$

$$Rs. 1,05,000$$

Question 7

Decrease, Decrease

Decrease, No effect

Increase, Decrease

No effect : No effect

Solution

Question 8

Profits

Provision

Capital

All the above

Solution

Question 9

capital

reserves and surplus

non-current liabilty

current liability

Solution

Question 10

At par

At premium

At discount

Both (a) and (b)

Solution

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