Accounting for Debentures Test

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Accounting for Debentures Test - 6

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Weekly Quiz Competition

Question 1
1 / -0

Maximum discount limit on issue of debentures is

A
15%

B
10%

C
20%

D
Not Fixed

Solution

There is no limit fixed by the Companies Act, 2013 for the maximum discount.
Question 2
1 / -0

Vinod Limited issued 20,000; 11% Debentures of ₹100 each at a premium of 20% redeemable at a premium of 5% after 5 years. Calculate the amount payable as premium on redemption of debentures?

A
1,00,000

B
4,00,000

C
2,00,000

D
1,20,000

Solution

The amount payable in the form of premium on redemption will be Premium payable on redemption = 100 × 5/100 = 5 20,000 debentures × 5 = 1,00,000
Question 3
1 / -0

Vinod Limited is engaged in a banking business and has to redeem its debentures worth ₹40,000 by paying a lump sum amount to the debenture holders. How much DRR company should create?

A
20,000

B
40,000

C
10,000

D
No DRR is required

Solution

As per the Section 71 (4) of the Companies Act, 2013 and Rule 18 (7) of the companies Rules 2014, a banking company is not required to create DRR.
Question 4
1 / -0

Vinod Limited has to redeem its debentures worth Rs.60,000 by paying a lump sum amount to the debenture holders. How much DRR company should create?

A
30,000

B
15,000

C
60,000

D
No DRR is required

Solution

As per the Section 71 (4) of the Companies Act, 2013 and Rule 18 (7) of the companies Rules 2014 company must create 25% DRR. i.e. 15,000.
Question 5
1 / -0

Vinod Limited has to redeem its debentures worth Rs.80,000 by paying a lump sum amount to the debenture holders. There is balance available in the DRR ₹9,000. How much DRR company must create to fulfil as per the Rule?

A
11,000

B
9,000

C
20,000

D
No DRR is required

Solution

As per the rules company must create a DRR Equal to 25% of the amount i.e. 20,000
A balance of DRR is already available for ₹9,000; Now company must create DRR for the remaining amount i.e. 11,000.
Question 6
1 / -0

Vinod Limited has to redeem its debentures worth ₹1,00,000 by paying a lump sum amount to the debenture holders. There is balance available in the DRR ₹14,000. How much DRR company must create if the redemption is made purely out of the profits?

A
20,000

B
86,000

C
1,00,000

D
6,000

Solution

When a company redeemed its shares purely out of profit in such a case we make 100% DRR. In this case, DRR should be Rs.1,00,000 but ₹14,000 balance of DRR is already available. So DRR will be created only for the remaining amount i.e. 86,000
Question 7
1 / -0

A Debenture of a company represents

A
Capital

B
Assets

C
Debt

D
Shareholders Fund

Solution

A debenture of a company represents debt of the company. Amount raised through debentures is treated as long term borrowings.
Question 8
1 / -0

Creation of DRR is compulsory in case of …….

A
Convertible Debentures

B
Banking Companies

C
All India Financial Institutions

D
Non-Convertible Debentures

Solution

Creation of DRR is compulsory in case of Non-convertible Debentures. An amount equal to at least 25% of the face value should be transferred to Debenture Redemption Reserve.
Question 9
1 / -0

What journal entry will take place when a company purchases its own debentures from the open market?

A
Bank A/c Dr. To Debentures A/c

B
Own Debentures A/c Dr. To Bank A/c

C
Bank A/c Dr. To Debenture Application A/c

D
Own Debentures A/c Dr. To Debenture A/c

Solution

When company purchases its own debentures from the market: Own Debentures A/c Dr. To Bank A/c as Payment made at the purchasing of own debentures.
Question 10
1 / -0

What journal entry will take place for the transfer of gain on cancellation of own debentures?

A
Gain on Cancellation of own debenture A/c Dr.
To Capital Reserve

B
Debenture Redemption Reserve
To Capital Reserve

C
Debenture Redemption Reserve
To General Reserve

D
Gain on Cancellation of own debenture A/c Dr.
To General Reserve

Solution

At the time of transfer of gain on cancellation of own debentures: Capital reserve account will be credited as it is the capital profit.
Question 11
1 / -0

When a company issue some debentures for a longer period with the charge of some assets they are called ________

A
Unsecured Debentures

B
Un-registered Debentures

C
Secured Debentures

D
Are not treated as Debentures

Solution

When a company issue some debentures with the charge of some assets they are called secured debentures. Such debentures are shown in the balance sheet under the heading of Long Term Borrwoings.
Question 12
1 / -0

Debentures which are not repayable during the lifetime of the company are called…..

A
Convertible Debentures

B
Perpetual or Irredeemable Debentures

C
Redeemable Debentures

D
Non-convertible Debentures

Solution

Debentures which are not repayable during the lifetime of the company are called Perpetual debentures or irredeemable debentures. These debentures can be redeemed only at the time of liquidation
Question 13
1 / -0

In Which account the balance of DRR is transferred after the redemption of debentures?

A
Securities Premium Reserves

B
Debenture Redemption Reserve

C
General Reserve

D
Capital Reserve

Solution

Balance amount of DRR (Debenture Redemption Reserve) is transferred to the General Reserve after redemption of all the debentures.
Question 14
1 / -0

Formula for calculation of no. of debentures issued______________________.

A
Purchase consideration/Issue price of debentures

B
Cash consideration/Issue price of debentures

C
Cash consideration/Issue price of shares

D
Purchase consideration/Issue price of shares

Solution
Question 15
1 / -0

Vinod Limited redeem its 500 debentures of 100 each by purchasing these debentures at ₹94 from the open market for cancellation. Calculate the profit on cancellation of own debentures.

A
2000

B
3,000

C
5000

D
2500

Solution

Profit on cancellation of own debentures will be ₹3,000. Profit per debentures is = 100 – 94 = 6 500 Debentures×6 = 3,000
Question 16
1 / -0

Vinod Limited acquired assets of Rs.20 Lakhs and took over creditors of ₹2,00,000 from Kumar Enterprises. Vinod Limited issued 8% Debenture of Rs.100 each at par as purchase consideration. Find out how many debenture issued by the company?

A
10,000

B
18,000

C
2,000

D
20,000

Solution

Vinod Limited has issued 18,000 Debentures to the Kumar Enterprises i.e. 18,00,000/100 = 18,000 Debentures
Question 17
1 / -0

Why does a company purchase its own debentures from the open market?

A
For Cancellation OR Investment

B
For Raising Finance

C
For Investment only

D
For Cancellation only

Solution

The main purpose of a company in purchasing its own debentures from the open market can be:
(i) For Immediate Cancellation
(ii) For Investment Purpose
Question 18
1 / -0

Redemption of Debentures means……

A
Repayment of capital

B
Repayment of Reserves

C
Repayment of profits

D
Repayment of loan
Question 19
1 / -0

Vinod Limited acquired assets of ₹50 Lakhs and took over creditors of ₹5,00,000 from Kumar Enterprises. Vinod Limited issued 8% Debenture of ₹100 each at a premium of 25% as purchase consideration. Calculate the number of debentures issued by the company.

A
40,000

B
36,000

C
45,000

D
50,000

Solution

Vinod Limited has issued 36,000 Debentures to the Kumar Enterprises i.e. 45,00,000/125 = 36,000 Debentures
Question 20
1 / -0

Which of the following is not correct?

A
Debentures can be issued at maximum 25% discount

B
Debenture of the company is issued with a fixed rate of interest

C
Debenture may or may not be secured

D
Debenture is issued under the common seal of the company

Solution

Following Statements are correct Except discount statement:
•Debenture is issued under the common seal of the company
•Debenture of the company is issued with a fixed rate of interest
•Debenture may or may not be secured

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Re-Attempt Weekly Quiz Competition

Accounting for Debentures Test - 6

Result

Accounting for Debentures Test - 6

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SHARING IS CARING

Question 1

15%

10%

20%

Not Fixed

Solution

Question 2

1,00,000

4,00,000

2,00,000

1,20,000

Solution

Question 3

20,000

40,000

10,000

No DRR is required

Solution

Question 4

30,000

15,000

60,000

No DRR is required

Solution

Question 5

11,000

9,000

20,000

No DRR is required

Solution

Question 6

20,000

86,000

1,00,000

6,000

Solution

Question 7

Capital

Assets

Debt

Shareholders Fund

Solution

Question 8

Convertible Debentures

Banking Companies

All India Financial Institutions

Non-Convertible Debentures

Solution

Question 9

Bank A/c Dr. To Debentures A/c

Own Debentures A/c Dr. To Bank A/c

Bank A/c Dr. To Debenture Application A/c

Own Debentures A/c Dr. To Debenture A/c

Solution

Question 10

Gain on Cancellation of own debenture A/c Dr.To Capital Reserve

Debenture Redemption ReserveTo Capital Reserve

Debenture Redemption ReserveTo General Reserve

Gain on Cancellation of own debenture A/c Dr.To General Reserve

Solution

Question 11

Unsecured Debentures

Un-registered Debentures

Secured Debentures

Are not treated as Debentures

Solution

Question 12

Convertible Debentures

Perpetual or Irredeemable Debentures

Redeemable Debentures

Non-convertible Debentures

Solution

Gain on Cancellation of own debenture A/c Dr.
To Capital Reserve

Debenture Redemption Reserve
To Capital Reserve

Debenture Redemption Reserve
To General Reserve

Gain on Cancellation of own debenture A/c Dr.
To General Reserve