Accounting for Debentures Test

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Accounting for Debentures Test - 1

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Weekly Quiz Competition

Question 1
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Match the following types of debentures

a. Security Debentures (i) Can exchange their debentures for share

b. Priority Debentures (ii) Repaid before the other debenture

c. Convertibility Debentures (iii) Secured by a fixed charge

Options are

A
a(iii),b(ii),c(i)

B
a(iii),b(i),c(ii)

C
a(ii),b(iii),c(i)

D
a(i),b(ii),c(iii)

Solution

(i) Security debentures are those which are secured by a fixed charge.

(ii) Priority Debentures are repaid before the other debentures.

(iii) Convertible debentures are those which can be converted into shares.
Question 2
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Interest on debentures will be paid to debenture holders _________

A
Whether there is profit or loss

B
When a company is maintaining Reserve

C
When there is capital reserve

D
When there is profit

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 3
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If a company issues its debentures at premium and receive excess applications out of which some are rejected and pro-rata allotment made to the remaining. Full amount is payable on application only. What journal entries will you record?

A
(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Securities premium Cr. Bank A/c Cr.

B
(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Securities premium Cr.

C
(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Bank A/c Cr.

D
(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. Securities premium Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Bank A/c Cr.

Solution

Following journal entry will be recorded in the books:

(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr.

(ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Securities premium Cr. Bank A/c Cr.

At the time of allotment excess money should be refund. so bank account will be credit with that amount.
Question 4
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While passing the entry for refund of money if the applications are rejected. Which account should be credited

A
Bank A/c

B
Securities Premium A/c

C
Debenture Allotment A/c

D
Debenture Application 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 5
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Debenture Allotment Account is a..................................

A
Personal Account

B
Nominal Account

C
Real Account

D
None of these

Solution

Debenture Allotment Account is a personal account. It is a Representative Personal Account.
Question 6
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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
Deep zero bond

C
Light Discount 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 7
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A debenture of Rs. 100 is issued at Rs. 110.It is an example of

A
Debenture issued at discount

B
Debenture issued at premium

C
Debenture issued at par

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.
Question 8
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Which of the following is not a regular method of redemption of debentures?

A
Redemption by selling business

B
Redemption by paying Lump Sum amount

C
Redemption by purchasing own debentures from the open market

D
Redemption by converting debentures into shares

Solution

Methods of Redemption are:

Redemption by paying Lump Sum amount

Redemption by Draw of Lots

Redemption by purchasing own debentures from the open market

Redemption by converting debentures into shares
Question 9
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Debentures are generally secured by __________

A
A charge on an asset

B
Bank Loan

C
Bank Overdraft

D
A charge on liabilities

Solution

Debentures are generally secured by a charge on assets. It shows that debentures are not issued for cash or kind but have been issued as a security for the loan obtained.
Question 10
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Why is premium on the issue of debentures considered as a capital profit

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

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

C
It is not a loss 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.

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Re-Attempt Weekly Quiz Competition

Accounting for Debentures Test - 1

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Accounting for Debentures Test - 1

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Question 1

a(iii),b(ii),c(i)

a(iii),b(i),c(ii)

a(ii),b(iii),c(i)

a(i),b(ii),c(iii)

Solution

Question 2

Whether there is profit or loss

When a company is maintaining Reserve

When there is capital reserve

When there is profit

Solution

Question 3

(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Securities premium Cr. Bank A/c Cr.

(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Securities premium Cr.

(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Bank A/c Cr.

(i) Bank A/c Dr. and Deb. App. & Allot. A/c Cr. Securities premium Cr. (ii) Deb. App. & Allot. A/c Dr. ; Debenture A/c Cr. Bank A/c Cr.

Solution

Question 4

Bank A/c

Securities Premium A/c

Debenture Allotment A/c

Debenture Application A/c

Solution

Question 5

Personal Account

Nominal Account

Real Account

None of these

Solution

Question 6

Deep Discount Bond

Deep zero bond

Light Discount bond

Fixed coupon Bond

Solution

Question 7

Debenture issued at discount

Debenture issued at premium

Debenture issued at par

None of these

Solution

Question 8

Redemption by selling business

Redemption by paying Lump Sum amount

Redemption by purchasing own debentures from the open market

Redemption by converting debentures into shares

Solution

Question 9

A charge on an asset

Bank Loan

Bank Overdraft

A charge on liabilities

Solution

Question 10

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.

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

All of these

Solution

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