Issue & Redemption of Debentures – Corporate and Management Accounting MCQBy CACSMockTest / November 25, 2022 1 Issue & Redemption of Debentures – Corporate and Management Accounting MCQ 1 / 71 In case of issue of debentures, the rate of underwriting commission paid or agreed to be paid shall not exceed: (A) 2.5% of the issue price (B) A rate authorized by the articles (C) 2.5% of the issue price or a rate authorized by the articles, whichever is more. (D) 2.5% of the issue price or a rate authorized by the articles, whichever is less. 2 / 71 Following balances appeared in the books of JKJ Ltd.:(a) Sinking fund account ₹ 62,500(b) Sinking fund investment account ₹ 60,000( 10% Govt, securities, nominal value ₹ 56,250)(b) Sinking fund investment account ₹ 60,000( 10% Govt, securities, nominal value ₹ 56,250) (c) 12% Debenture account ₹ 1,25,000.The company sold ₹ 37,500 Govt, securities at 110% and redeemed part of the debentures at a premium of 10%. The closing balance of Sinking Fund A/c will be (A) ₹ 60,000 (B) ₹ 21,250 (C) ₹ 22,500 (D) ₹ 26,2500 3 / 71 Following balances appeared in the books of R Ltd.:12% Debentures – ₹ 8,00,000Sinking fund – ₹ 7,00,000Sinking fund investment – ₹ 7,00,000(Represented by 10% – ₹ 7,50,000 secured bonds of Government of India)The annual contribution to the sinking fund was ₹ 1,20,000 made on 31st March each year. On 31.3.2018, the balance at the bank was ₹ 3,50,000 before receipt of interest. The company sold the investments at 90% for the redemption of debenture at a premium of 10% on the above date. Amount to be transferred to general reserve after redemption of debentures will be (A) ₹ 5,90,000 (B) ₹ 7,90,000 (C) ₹ 8,70,000 (D) ₹ 8,20,000 4 / 71 Following balances appeared in the books of Bright Ltd.:(A) Sinking fund account ₹ 50,000(B) Sinking fund investment account ₹ 48,000 (10% Govt, securities, nominal value ₹ 45,000)(C) 12% Debenture account ₹ 1,00,000.The company sold ₹ 30,000 Govt, securities at 110%, and redeemed part of the debentures at a premium of 10%. The closing balance of Sinking Fund A/c will be (A) ₹ 48,000 (B) ₹ 17,000 (C) ₹ 18,000 (D) ₹ 21,000 5 / 71 Following balances stood in books X Ltd.:3.50.0. 6, Delhi Govt. Bonds 3,56,3004.0. 000, 5% Punjab Water Loan 3,20,3403.0. 000, 8% Goa Govt. Loan 3,08,550 80.0, 7% Gurgaon Gramin Loan 80,210Investments were sold as follows:6% Delhi Govt. Bond at par5% Punjab Water Loan at ₹ 918% Goa Govt. Loan at ₹ 1091% Gurgaon Gramin Loan at ₹ 103How much profit will be transferred to the debenture redemption fund account on the sale of the above investments? (A) ₹ 63,000 (B) ₹ 58,000 (C) ₹ 46,000 (D) ₹ 43.600 6 / 71 On 1.1.2015 X Ltd. issued 10,000 fifteen years 10% debentures of ₹ 100 each. On 1.4.2020 the company gave notice to the debenture holders of its intention to redeem the debentures on 1.10.2020 either by payment in cash or by allotment of 11% preference shares of ₹ 100 each at ₹ 130 per share or 11% the second debenture of ₹ 100 at ₹ 96 per debenture. Holders of 4,000 debentures accepted the offer of the preference shares. How many preference shares will be issued if debentures are to be redeemed at a 4% premium? (A) 3,077 Preference shares (B) 3,200 Preference shares (C) 4,160 Preference shares (D) 3,560 Preference shares 7 / 71 Eagle Ltd. issued a 15% Debenture of ₹ 100 each at a discount of 5%, but redeemable at a premium of 5% at the end of 4 years then (A) Loss on Issue of Debenture A/c will be credited by ₹ 5 (B) Premium on Redemption of Debenture A/c will be debited by ₹ 5 (C) Loss on Issue of Debenture A/c will be debited by ₹ 10 (D) Premium on Redemption of Debenture A/c will be debited by ₹ 10 8 / 71 Following journal entry appears in the books of KAKA Ltd.:Debentures are redeemable at a premium of (A) 5% (B) 10% (C) 10.53% (D) 15.79% 9 / 71 Janardhan Ltd. issued 40,00,000, 15% Debentures at 8% discount. Debentures are to be redeemed as per the schedule given below:Amount of discount to be written off in each the 5 calendar years (A) ₹ 80,000, ₹ 80,000, ₹ 72,000, ₹ 56,000, ₹ 32,000 in years 1 to 5. (B) ₹ 64,000 every year (C) ₹ 32,000, ₹ 32,000, ₹ 28,800, ₹ 25,600, ₹ 12,800 in years 1 to 5. (D) ₹ 3,20,000 in last year 10 / 71 Following journal entry appears in the books of KAKA Ltd.: (A) Discount of 6% (B) Discount of 4% (C) Discount of 10% (D) Premium of 6% 11 / 71 On 1 st July, 2017a company issued 2,500,9% debentures of ₹ 100 each at a discount of 10%. The debentures were redeemable by five annual drawings of ₹ 50,000 on 31st March each year. Calculate the amount of discount on debentures to be written off at the end of each year on 31st March. (A) ₹ 6,818, ₹ 7,273, ₹ 5,455, ₹ 3,636, ₹ 1,818 for the year ended 31.3.2018 to 31.3.2022. (B) ₹ 6,188, ₹ 7,723, ₹ 5,545, ₹ 3,366, ₹ 1,188 for the year ended 31.3.2018 to 31.3.2022. (C) ₹ 6,881, ₹ 7,237, ₹ 5,455, ₹ 3,663, ₹ 1,881 for the year ended 31.3.2018 to 31.3.2022. (D) None of the above is correct 12 / 71 Rama Ltd. issued 40,000, 8% debentures of ₹ 10 each which are redeemable after 5 years at a premium of 20%. The amount of loss on redemption of Debentures to be written off every year will be (A) ₹ 80,000 (B) ₹ 20,000 (C) ₹ 8,000 (D) ₹ 16,000 13 / 71 P Ltd. issued 5,000,12% debentures of ₹ 100 each at a premium of 10%, which are redeemable after 10 years at a premium of 20%. The amount of loss on redemption of debentures to be written off every year =? (A) ₹ 80,000 (B) ₹ 40,000 (C) ₹ 10,000 (D) ₹ 8,000 14 / 71 W Ltd. issued 20,000,8% debentures of ₹ 10 each at par, which are redeemable after 5 years at a premium of 20%. The amount of loss on redemption of debentures to be written off every year will be: (A) ₹ 40,000 (B) ₹ 10,000 (C) ₹ 20,000 (D) ₹ 8,000 15 / 71 On May 1, 2018, U WB Ltd. issued 7% 10,000 convertible debentures of ₹ 100 each at a premium of 20%. Interest is payable on September 30 and March 31 every year. Assuming that the interest runs from the date of issue, the total amount of interest expenditure debited to profit and loss account for the year ended March 31, 2019, will be: (A) ₹ 70,000 (B) ₹ 58,333 (C) ₹ 84,000 (D) ₹ 64,167 16 / 71 T Ltd. has issued 14% Debentures of ₹ 20,00,000 at a discount of 10% on April 1, 2017, and the company pays interest half-yearly on June 30, and December 31 every year. On March 31, 2019, the amount is shown as “interest accrued but not due” in the Balance Sheet will be (A) ₹ 70,000 (B) ₹ 2,10,000 (C) ₹ 1,40,000 (D) ₹ 2,80,000 17 / 71 F Ltd. purchased Machinery from G Company for a book value of ₹ 4,00,000. The consideration was paid by the issue of 10% debentures of ₹ 100 each at a premium of 25%. The debenture account was credited with. (A) ₹ 4,00,000 (B) ₹ 5,00,000 (C) ₹ 3,20,000 (D) ₹ 4,80,000 18 / 71 N Ltd. purchased a fixed asset of ₹ 4,00,000 out of ₹ 1,30,000 paid in cash and balance in debentures. The consideration was paid by the issue of 12% Debentures of ₹ 100 each at a 10% discount. No. debentures to be issued = ? (A) 3,000 debentures (B) 4,000 debentures (C) 4,444 debentures (D) 30,000 debentures 19 / 71 Ganga Ltd. purchased a fixed asset of ₹ 2,00,000. The consideration was paid by the issue of 12% Debentures of ₹ 100 each at a discount of 20%. Debenture A/c to be credited with (A) ₹ 1,60,000 (B) ₹ 2,40,000 (C) ₹ 2,50,000 (D) ₹ 2,60,000 20 / 71 The expenses on issue amounted to ₹ 20,000. The company wants to redeem the debentures at the rate of ₹ 1,00,000 each year commencing with the end of the 5th year. How much discount and expenses should be written off in each year? (A) ₹ 10,000, ₹ 10,000, ₹ 10,000, ₹ 10,000,₹ 10,000,₹ 8,000,₹ 6,000, ₹ 4,000, ₹ 2,000 in each year respectively (B) ₹ 10,000, ₹ 10,000, ₹ 10,000, ₹ 10,000,₹ 10,000,₹ 4,000,₹ 6,000, ₹ 6,000, ₹ 8,000 in each year respectively (C) ₹ 2,000, ₹ 6,000, ₹ 8,000, ₹ 10,000, ₹ 10,000, ₹ 10,000, ₹ 10,000, ₹ 10,000, ₹ 10,000 in each year respectively (D) ₹ 7,000, ₹ 7,000, ₹ 7,000, ₹ 7,000, ₹ 7,000, ₹ 7,000, ₹ 7,000, ₹ 7,000, ₹ 7,000 in each year respectively 21 / 71 Z Ltd. issued ₹ 1,00,000 debenture at a discount of 6% on 1.1.2019 repayable in 5 equal installment. Discount to be written off in each 5 calendar year (A) ₹ 900, ₹ 1,200, ₹ 1,200, ₹ 1,200 & ₹ 300 in 1st, 2nd, 3rd, 4th & 5th year (B) ₹ 2,000, ₹ 1,600, ₹ 1,200, ₹ 800 & ₹ 400 in 1st, 2nd, 3rd, 4th & 5th year (C) ₹ 400, ₹ 800, ₹ 1,200, ₹ 1,600 & ₹ 2,000 in 1st, 2nd, 3rd, 4th & 5th year (D) ₹ 1,200, ₹ 1,200, ₹ 1,200, ₹ 1,200 & ₹ 1,200 in 1st, 2nd, 3rd, 4th & 5th year 22 / 71 The following data is available from the records of NS Ltd.:Issued capital ₹ 20,00,000Call in arrear ₹ 10,000P& LA/con 1.4.2018 ₹ 67,000Profit for the year ₹ 1,90,610The company wants to create a debenture redemption reserve and transfer ₹ 50,000 every year. The company declared a 10% dividend. Balance of surplus after effecting the above transaction? (A) ₹ 6,000 (B) ₹ 6,810 (C) ₹ 68,100 (D) ₹ 8,610 23 / 71 X Ltd. obtained a loan from IDBI of ₹ 10,00,000, giving as collateral security of ₹ 15,00,000, 14% Debenture on 1st April 2019. Which of the following accounting treatment is correct to issue debenture as collateral security? (A) No accounting entry is required (B) Debenture Suspense A/c Dr. 15,00,000To 14% Debenture A/c 15,00,000 (C) Either (A) or (B) (D) None of above 24 / 71 Z Ltd. issued 10% Debentures of ₹ 10 to a vendor having a face value of ₹ 2,50,000 for purchase of fixed assets of ₹ 2,00,000. No. of debentures to issued to vendors =? (A) 25,000 debentures (B) 20,000 debentures (C) 10,000 debentures (D) 30,000 debentures 25 / 71 HDC Ltd. issued 10,000, 12% Debentures of ₹ 100 each at ₹ 94 on 1st January 2010. Under the term of issue, 1 / 5th of the debentures are annually redeemable by drawings, the first redemption occurring on 31 st December, 2010. Calculate the amount of discount to be written off in 2010 & 2011. (A) ₹ 20,000 & ₹16,000 (B) ₹ 16,000 & ₹ 12,000 (C) ₹ 16,000 & ₹ 12,000 (D) ₹ 12,000 & ₹ 8,000 26 / 71 ZPA Ltd. issued 10,000, 12% Debentures of ₹ 100 each at ₹ 94 on 1st January 2010. Under the terms of the issue, the debentures are redeemable at the end of 8 years from the date of the issue. Calculate the amount of discount to be written-off in each of the 8 years. (A) ₹ 8,000 (B) ₹ 7,500 (C) ₹ 6,000 (D) ₹ 5,000 27 / 71 Z Ltd. issued 10,000,12% Debentures of ₹ 100 each at a discount of 10% payable in full on application by 31st May 2019. Applications were received for 12,000 debentures. Debentures were allotted on 9th June 2019. ‘ Excess monies were refunded on the same date. The amount that will appear in [ balance sheet as “ 12% Debentures” =? (A) ₹ 11,00,000 (B) ₹ 10,00,000 (C) ₹ 9,00,000 (D) ₹ 10,80,000 28 / 71 ZPA Ltd. issued 10,000, 12% Debentures of ₹ 100 each at per payable in full on application by 1st April 2019. Applications were received for 11,000 Debenture. Debentures were allotted on 7th April 2019. Excess money was refunded. The amount that will appear in the balance sheet as “12% Debenture” =? (A) ₹ 11,00,000 (B) ₹ 10,00,000 (C) ₹ 9,00,000 (D) ₹ 10,80,000 29 / 71 Correct entry to transfer interest received on sinking fund investment is (A) Debit Interest on Sinking Fund Investment A/c and Credit Profit & Loss A/c (B) ZtetoProfit & Loss A/c and Credit Interest on Sinking Fund Investment A/c (C) Debit Interest on Sinking Fund Investment A/c and Credit Sinking Fund A/c (D) Debit Sinking Fund A/c and Credit Interest on Sinking Fund Investment A/c 30 / 71 Debenture issued at par but redeemable at price less than face value then (A) Loss must be debited to Loss on Issue of Debenture A/c (B) Profit on redemption will be ignored and Bank A/c and Debentures A/c both will be recorded at face value. (C) Premium on Redemption of Debenture A/c must be credited. (D) None of the above 31 / 71 If debentures are issued at discount but redeemable at a premium then (A) Loss on Issue of Debentures A/c will be credited (B) Debentures A/c will be debited (C) Loss on Issue of Debentures A/c will be debited (D) Premium on Redemption of Debentures A/c will be debited 32 / 71 If nothing is stated, purchase & sale of debentures, government securities should be taken to be on (A) Cum-interest (B) Ex-interest basis (C) (A) or (B) at the option of seller (D) (A) or (B) at the option buyer 33 / 71 If the purchase price for the debentures includes interest for the expired period, the quotation is said to be (A) Ex-interest (B) Cum-interest (C) Carrying interest (D) Sinking interest 34 / 71 Loss on sale of Debenture Redemption Fund Investment account must be set-off against (A) Profit & loss account (B) General reserve account (C) Sinking fund account (D) All of the above 35 / 71 Debenture redemption fund investment account will appear on the assets side of the balance sheet under the head, while debenture redemption fund account will appear on the liabilities side under the head (A) Reserves & Surplus; Non-Current Assets (B) Non-Current Assets; Reserves & Surplus (C) Investments; Reserves & Surplus (D) Current Assets; Non-Current Liabilities 36 / 71 Another name of Debenture Redemption Fund Method is (A) Redemption Fund Method (B) Sinking Fund Method (C) Both (A) and (B) (D) Neither (A) nor (B) 37 / 71 Another name of Debenture Redemption Fund Method is (A) Sum of year digit method (B) Depreciation fund method (C) Double decline method (D) None of the above 38 / 71 Every company required to create DRR shall on or before the 30th day of April in each year, invest or deposit, as the case may be, a sum which shall 7.5 not be less than, of the number of its debentures maturing during the year ending on the 31st day of March of the next year (A) 100% (B) 50% (C) 25% (D) 15% 39 / 71 Which of the following is not required to create Debenture Redemption Reserve? (A) All India Financial Institutions (B) NBFCs (C) Infrastructure companies (D) All of the above 40 / 71 Debentures Suspense Account (A) is treated as a deferred asset account. (B) is shown on the assets side of the balance sheet under the head ‘Current Assets’. (C) is a capital loss and must be written off over the tenure of the debentures. (D) is shown on the assets side of the balance sheet under the head ‘Non-Current Assets’. 41 / 71 If the company acquires some assets from the vendor and instead of paying the vendor in cash, the company may allot debentures in payment of purchase consideration. In such case, if the face value of debentures issued is less than the value of assets acquired then the difference will be (A) Credited to the capital reserve account (B) Debited goodwill account (C) Credited to premium on debentures account (D) Credited to profit and loss account 42 / 71 If the company acquires some assets from the vendor and instead of paying the vendor in cash, the company may allot debentures in payment of purchase consideration. In such case, if the face value of debentures issued is more than the value of assets acquired then the difference will be (A) Credited to the capital reserve account (B) Debited goodwill account (C) Credited to premium on debentures account (D) Credited to profit and loss account 43 / 71 Which of the following is not a method of writing off discount on the issue of debentures? (A) Fixed installment method (B) Fluctuating installment method (C) Adjusted discount policy method (D) All of the above 44 / 71 Sound business policy demands that discount on the issue of debenture should be written off (A) As quickly as possible (B) In 5 years (C) In 10 years (D) As agreed at the time of the issue 45 / 71 Discount on issue of debentures, being a capital loss must be shown (A) On the assets side under the heading “Miscellaneous Expenditures”. (B) As a deduction from the “Non-cur-rent Liabilities” on the liability side of the balance sheet. (C) As a deduction from the “Share-holders Funds” on the liability side of the balance sheet. (D) As a footnote to the balance sheet. 46 / 71 Arrange the priority of payment in case of liquidation of the company:I. Preference shares holdersII. Secured creditorsIII. Equity shareholdersIV. Unsecured creditorsV. Debenture holders (A) II, IV, V, I, III (B) II, V, IV, I, III (C) II, V, I, IV, III (D) II, I, III, V, IV 47 / 71 Statement I:Debentures can be converted into shares as per the terms of the issue of debentures. Statement II:Shares cannot be converted into debentures in any circumstances. (A) Statement I is true while Statement II is false. (B) Statement II is true while Statement I is false. (C) Statement I and Statement II both are false. (D) Statement I and Statement II both are true. 48 / 71 As a sound accounting policy when debentures are redeemed amount equal to (A) Redemption price is transferred to profit & loss account. (B) Original issue price is transferred to the general reserve account. (C) Redemption price is transferred to the general reserve account (D) Face value is transferred to the general reserve account 49 / 71 Profit on cancellation of debentures is transferred to (A) Capital reserve (B) Capital redemption reserve (C) Profit & loss account (D) General reserve 50 / 71 If debentures are issued at discount and redeemed at a premium (A) Loss on Issue of Debentures A/c is debited (B) Debentures A/c is credited (C) Premium on Redemption of Debentures A/c is credited. (D) All of the above are correct. 51 / 71 Debentures normally cannot be redeemed at (A) Premium (B) Discount (C) Par (D) All of the above 52 / 71 Debentures can be redeemed out of- (A) Profits (B) Provisions (C) Capital (D) Any of the above 53 / 71 Debenture premium cannot be used (A) Write off the premium on redemptions of shares or debenture (B) Write off the discount on the issue of debentures (C) Pay dividends (D) Write off capital losses 54 / 71 Tax deducted at source on interest on debenture is shown as (A) Expense (B) Asset (C) Liability (D) Income 55 / 71 “Interest accrued & not due on debentures” is shown (A) Under debentures (B) As current liabilities (C) As provisions (D) As a reduction of bank balance 56 / 71 “Interest accrued & due on debentures” is shown (A) Under debentures (B) As other current liabilities (C) As provisions (D) As a reduction of bank balance 57 / 71 Non convertible debentures refer to (A) Owner’s capital (B) Loan capital (C) Short term fund (D) Deferred investment 58 / 71 When debentures are redeemable at different dates, the total amount of discount on the issue of debentures should be written off: (A) Every year by applying the sum of the year’s digit method (B) Every year by applying the straight-line method (C) To profit and loss account in full in the year of final or last redemption (D) To profit and loss account in full in the year of the first redemption. 59 / 71 When debentures are issued as collateral security against any loan then the holder of such debentures is entitled to: (A) Interest only on the amount of loan. (B) Interest only on the face value of debentures. (C) Interest both on the amount of the loan and on the debentures. (D) None of the above. 60 / 71 Discount on issue of debentures is a: (A) ‘Revenue loss to be charged in the year of issue. (B) Capital loss to be written off from capital reserve. (C) Capital loss to be written off over the tenure of the debentures. (D) Capital loss to be shown as goodwill. 61 / 71 Which of the following is true with regard to 10% Debentures issued at a discount of 20%? (A) The carrying amount of debentures gets reduced each year at a rate of 20%. (B) Issue price and the carrying amount of debentures are equal. (C) At the time of redemption, the debenture holder will be paid the issue price. (D) The face value and the carrying amount of debentures are equal. 62 / 71 Interest on debentures is calculated on: (A) Its face value (B) Its issue price (C) Its market price (D) Its redemption price 63 / 71 Which of the following statements is false? (A) Debenture is a form of public borrowing. (B) It is customary to prefix debentures with the agreed rate of interest in case of fixed interest. (C) Debenture interest is a charge against profits. (D) The issue price and redemption value of debentures cannot differ. 64 / 71 Debentures can beI. Mortgage Debentures or Simple Debentures.II. Registered Debentures or Bearer Debentures.III. Redeemable Debentures or Irredeemable Debentures.IV. Convertible Debentures or Non-convertible DebenturesSelect the correct answer from the options given below. (A) Both (I) and (II) above (B) Both (I) and (III) above (C) Both (II) and (III) above (D) All (I), (II), (III), and (IV) or above 65 / 71 When debentures are issued as collateral security, the final entry for recording the collateral debentures in the books is: (A) Credit Debentures A/c and debit Cash A/c (B) Debit Debenture suspense A/c and credit Cash A/c (C) Debit Debenture suspense A/c and credit Debentures A/c (D) Debit cash A / c and credit the loan A/c for which security is given 66 / 71 Which of the following is NOT a characteristic of Bearer Debentures? (A) They are treated as negotiable instruments. (B) Their transfer requires a deed of transfer. (C) They are transferable by mere delivery. (D) The interest on it is paid to the holder irrespective of identity 67 / 71 Debenture interest (A) is payable only in case of profits. (B) accumulates in case of losses or inadequate profits. (C) is payable after the payment of preference dividend but before the payment of equity dividend. (D) is payable before the payment of any dividend on shares. 68 / 71 Which of the following statements is false? (A) A company can issue convertible debentures. (B) Debentures cannot be secured. (C) A company can issue redeemable debentures. (D) Debentures have no right to participate in profits over and above their fixed interest. 69 / 71 Which of the following statements is FALSE? (A) At maturity, debenture holders get back their money as per the terms and conditions of redemption. (B) Debentures can be forfeited for non-payment of call money. (C) In the company’s balance sheet, debentures are shown under secured loans. (D) Interest on debentures is charged against profits. 70 / 71 Premium on redemption of debentures account appearing in the balance sheet is (A) A real account (B) A nominal account income (C) A personal account (D) A nominal account expenditure 71 / 71 Which of the following statements is TRUE? (A) A debenture holder is an owner of the company. (B) A debenture holder can get his money back only on the liquidation of the company. (C) A debenture issued at a discount can be redeemed at a premium. (D) A debenture holder receives interest only in the event of profits. Your score is LinkedIn Facebook Twitter VKontakte Related