Accounting for Debentures Test

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Accounting for Debentures Test - 4

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Question 1
1 / -0

Why is premium on the issue of debentures considered as a capital profit

A
It is not a loss arising from the normal course of business operations.

B
It is not an income arising from the normal course of business operations.

C
It is an income arising from the normal course of business operations.

D
All of these

Solution

Premium on issue of debentures is considered as capital profit because it is not earned by the normal course of business operations. Any profit or gain earned by the company which is not part of the normal operating business is termed as capital profit.
Question 2
1 / -0

When an instrument is issued without interest rate and issue price is thereby discounted, the issue of such instrument is called ----

A
Deep Discount Bond

B
Light Discount bond

C
Deep zero bond

D
Fixed coupon Bond

Solution

Sometimes a company issue an instrument on which rate of interest is not pre-determined. Such instruments are called Bond.
Question 3
1 / -0

Vinod Limited has 5,000, 11% Debentures which are to be redeemed within the 8 Months from the date of previous balance sheet. How will you show these debentures in the balance sheet?

A
Trade payables

B
Short Term Borrowings

C
Long Term Borrowings

D
Under Other Current Liabilities

Solution

When debentures become due for the redemption they are shown under the heading of Current Liabilities and sub heading Other Current Liabilities.
Question 4
1 / -0

Interest on debentures will be paid to debenture holders _________

A
When there is capital reserve

B
When there is profit

C
Whether there is profit or loss

D
When a company is maintaining Reserve

Solution

Interest on debentures is a charge against the profit. It means it will be paid whether the firm is in profit or loss. It will reduce the profit of the firm or it will increase the loss of the firm.
Question 5
1 / -0

Vinod Limited issued 12%, 1,000 Debentures @ 100 each at a premium of 10%. What will be the first journal entry?

A
Bank A/c Dr.   1,10,000
To 12% Debentures App. & Allot. A/c 1,10,000
(Being Application money received)

B
Bank A/c Dr.    1,00,000
To Debentures App. & Allot. A/c 1,00,000

C
12% Debentures A/c Dr.    1,10,000 To Debentures App. & Allot. A/c 1,10,000

D
Bank A/c Dr.    1,10,000
To Debentures App. & Allot. A/c 1,00,000
To Securities premium 10,000

Solution

Following journal entry will be recorded for the issue of debentures:
Bank A/c Dr.    1,10,000
To 12% Debentures App. & Allot. A/c 1,10,000
Note: In this first entry there is no need to show premium separately Premium will be showed in Transfer entry.
Question 6
1 / -0

Debentures cannot be issued by_________

A
Public Company

B
Private Company

C
Infrastructure Company

D
Sole Proprietor firm

Solution

A sole proprietor firm cannot issue debentures. Only those firms which are registered under the Companies Act, 2013 or before can issue debentures with the permission of SEBI.
Question 7
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Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The issue was oversubscribed by 5 times. What is this situation called?

A
Full Subscription

B
Under Subscription

C
Pro-rata Allotment

D
Over Subscription

Solution

When a company receives more applications for the debentures than the actual debentures offered for the subscription, it is known as over subscription.
Question 8
1 / -0

While passing the entry for refund of money if the applications are rejected. Which account should be credited

A
Debenture Allotment A/c

B
Debenture Application A/c

C
Securities Premium A/c

D
Bank A/c

Solution

When a company reject excess debenture applications received and paid back their money, in such a case bank account should be credited with the amount to be refunded to the applicants.
Question 9
1 / -0

Vinod Limited invited applications for 2,000, 11% Debentures @ 100 each. The company received application only for 1900 debentures. What is this situation called?

A
Under Subscription

B
Over Subscription

C
Full Subscription

D
Pro-rata Allotment

Solution

When a company receives less applications for the debentures than the actual debentures offered for the subscription, it is known as under subscription.
Question 10
1 / -0

A debenture of Rs. 100 is issued at Rs. 110.It is an example of

A
Debenture issued at discount

B
Debenture issued at par

C
Debenture issued at premium

D
None of these

Solution

When a company issue its debentures at a price more than its actual price, it is known as debentures issued at premium.

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Accounting for Debentures Test - 4

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Accounting for Debentures Test - 4

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Question 1

It is not a loss arising from the normal course of business operations.

It is not an income arising from the normal course of business operations.

It is an income arising from the normal course of business operations.

All of these

Solution

Question 2

Deep Discount Bond

Light Discount bond

Deep zero bond

Fixed coupon Bond

Solution

Question 3

Trade payables

Short Term Borrowings

Long Term Borrowings

Under Other Current Liabilities

Solution

Question 4

When there is capital reserve

When there is profit

Whether there is profit or loss

When a company is maintaining Reserve

Solution

Question 5

Bank A/c Dr. 1,10,000 To 12% Debentures App. & Allot. A/c 1,10,000 (Being Application money received)

Bank A/c Dr. 1,00,000 To Debentures App. & Allot. A/c 1,00,000

12% Debentures A/c Dr. 1,10,000 To Debentures App. & Allot. A/c 1,10,000

Bank A/c Dr. 1,10,000 To Debentures App. & Allot. A/c 1,00,000 To Securities premium 10,000

Solution

Question 6

Public Company

Private Company

Infrastructure Company

Sole Proprietor firm

Solution

Question 7

Full Subscription

Under Subscription

Pro-rata Allotment

Over Subscription

Solution

Question 8

Debenture Allotment A/c

Debenture Application A/c

Securities Premium A/c

Bank A/c

Solution

Question 9

Under Subscription

Over Subscription

Full Subscription

Pro-rata Allotment

Solution

Question 10

Debenture issued at discount

Debenture issued at par

Debenture issued at premium

None of these

Solution

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Bank A/c Dr. 1,10,000
To 12% Debentures App. & Allot. A/c 1,10,000
(Being Application money received)

Bank A/c Dr. 1,00,000
To Debentures App. & Allot. A/c 1,00,000

Bank A/c Dr. 1,10,000
To Debentures App. & Allot. A/c 1,00,000
To Securities premium 10,000