MCQ on Issue of Debentures
MCQ on Redemption of
Debentures
In this page, you will get MCQ on Issue of debentures and MCQ on Redemption of Debentures which are useful for AHSEC and CBSE Class 12, B. Com and Various Professional Exams Like CA/CMA and CS.
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Introduction to Debentures
According to Sec. 2 (30) of the companies Act, 2013, debentures include “debenture stock, bonds and any other instruments of a company evidencing a debt, whether constituting a charge on the assets of the company or not.”
Debentures are debt instruments issued by a joint stock company. Amounts collected by way of debentures form part of the loan capital of a company. They are repayable after a fixed period. Debenture holders get interest on their debentures. They are creditors of the company. They do not get dividend. Only shareholders get dividend.
Meaning of Redemption of Debentures
Redemption of debenture is the discharge of debenture liability. It can be done either by repaying the money to debenture holders or converting the debenture into shares. The conditions of redemption are clearly stated at the time of issue of debenture in the prospectus.
Debentures can be redeemed at par, premium or discount as per the terms of issue. The period of maturity, redemption amount, yield on redemption etc. will be mentioned in the prospectus. In case the non-convertible debentures proposed to be rolled over (repayment extended for an additional period), a compulsory option should be given to the debenture holders who wish to withdraw from the debenture programme, as per the guidelines issued by SEBI.
Choose
the correct answer to the following questions from the given alternatives:
1. Debenture
represents the:
a) Long-term liabilities of a business
b) Govt’s share in the capital of the company
c) Short-term liabilities
d) Investment by shareholders in business
Ans:
a) Long-term liabilities of a business
2. Debenture
holders are:
a) Owners of the company
b) Creditors of the company
c) Investors of the company
d) Directors of the company
Ans:
b) Creditors of the company
3. Excess value
of net assets over purchase consideration at the time of purchase of business
is credited to:
a) General reserve,
b) Capital
reserve,
c) Vendors’ account.
d) Goodwill.
Ans:
b) Capital reserve,
4. Excess value
of Purchase consideration over net assets at the time of purchase of business
is credited to:
a) General reserve,
b) Capital reserve,
c) Vendors’ account.
d) Goodwill.
Ans:
d) Goodwill.
5. 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 capital loss.
Ans:
c) Pay dividends.
6. Loss on
issue of debentures is treated as:
a) Intangible asset.
b) Current asset.
c) Current liability.
d) Miscellaneous
expenditure.
Ans:
d) Miscellaneous expenditure.
7. 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.
Ans:
b) Their transfer requires a deed of transfer.
8. Debentures
can be _________.
I. Mortgage Debentures or Simple Debentures.
II. Registered Debentures Or Bearer
Debentures.
III. Redeemable Debentures or Irredeemable
Debentures.
IV. Convertible Debentures or Non-convertible
Debentures.
a) Both (I) and (II) above.
b) Both (I) and (III) above.
c) Both (II) and (III) above.
d) All of (I),
(II), (III) and (IV) above.
Ans:
d) All of (I), (II), (III) and (IV) above.
9. 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.
Ans:
c) Capital loss to be written off over the tenure of the debentures.
10. Discount on
issue of debentures is shown under which head in the balance sheet?
a) Reserves and Surplus
b) Miscellaneous expenditure
c) Current assets
d) Non-current liabilities
Ans:
b) Miscellaneous expenditure
Also Read: Corporate Accounting MCQs Chapterwise
Issue and Redemption of Debentures MCQs
Redemption of Preference Shares MCQs
Amalgamation and External Reconstruction MCQs
MCQs on Liquidation of Companies
11. Debentures
can be redeemed out of:
a) Profits.
b) Capital.
c) Provisions made for redemption.
d) By converting them into shares or new
debentures.
e) All of the
above.
Ans:
e) All of the above.
12. Premium on
redemption of debentures account is:
a) A real account.
b) A nominal account – income.
c) A personal account.
d) A nominal
account – expenditure.
Ans:
d) A nominal account – expenditure.
13. When all
the debentures are redeemed, balance in the debentures redemption fund account
is transferred to:
a) Capital reserve,
b) General
reserve,
c) Profits and loss appropriation account.
Ans:
b) General reserve,
14. When
debentures are issued as collateral security, the final entry for recording the
transaction 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.
Ans:
c) Debit debenture suspense a/c. and credit debentures a/c.
15. Own debentures
are those debentures of the company which:
a) The company allots to its own promoters,
b) The company allots to its Director,
c) The company
purchases from the market and keeps them as investments.
Ans:
c) The company purchases from the market and keeps them as investments.
16. Profit on
cancellation of own debentures is transferred to:
a) Profit and loss appropriation a/c,
b) Debenture redemption reserve,
c) Capital
reserve.
d) General reserve
Ans:
c) Capital reserve.
17. When
debentures are redeemed out of profits, an equal amount is transferred to:
a) General reserve,
b) Debenture
redemption reserve,
c) Capital reserve.
Ans:
b) Debenture redemption reserve,
18. Profit on
sale of debenture redemption fund investments in the first instance is credited
to:
a) Debenture
redemption fund account,
b) Profit and loss appropriation account,
c) General reserve account.
Ans:
a) Debenture redemption fund account,
19. The balance
of sinking fund investment account after the realisation of investments is
transferred to:
a) Profit and loss account,
b) Debentures account,
c) Sinking fund
account.
Ans:
c) Sinking fund account.
20. Till
debentures are redeemed, loss on issue of debentures is:
a) Shown as Miscellaneous expenditure in
Balance sheet
b) Shown as a deduction from debentures
c) Shown as an asset
d) Not shown in balance sheet
Ans:
a) Shown as Miscellaneous expenditure in Balance sheet
21. 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.
Ans:
c) A debenture issued at a discount can be redeemed at a premium.
22. Which of
the following is not true with respect to debenture?
a) Debenture is written instrument
acknowledging a debt under the common seal of the company.
b) Debenture is a part
of owned capital.
c) The payment of interest on debentures is a
charge on the profits of the company.
d) Redeemable debentures are those
debentures, which are payable on the expiry of the specific period.
Ans:
b) Debenture is a part of owned capital.
23. Which of
the following is true with respect to debenture?
a) The debentures cannot be issued at a
discount of more than 10% of the face value.
b) Perpetual
debentures are also known as irredeemable debentures.
c) Debentures cannot be converted into shares.
d) Debentures cannot be issued at a premium.
Ans:
b) Perpetual debentures are also known as irredeemable debentures.
24. 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.
Ans:
b) Debentures cannot be secured.
25. 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 company’s balance sheet, debentures are
shown under secured loans.
d) Interest on debentures is charged against
profits.
Ans:
b) Debentures can be forfeited for non payment of call money.
26. Which of
the following is not true about debenture stock?
a) It must be fully paid.
b) Debenture Stock can be transferred in
fraction.
c) Debenture stock
are identified by their distinct number.
Ans:
c) Debenture stock are identified by their distinct number.
27. Which of
the following is false?
a) A company can issue irredeemable debentures.
b) A company can
issue debentures with voting rights.
c) A company can buy its own shares.
d) A company can buy its own debentures.
Ans:
b) A company can issue debentures with voting rights.
28. Which of
the following is/are true with respect to debentures?
a) They can be issued for cash.
b) They can be issued for consideration other
than cash.
c) They cannot be issued as collateral
security.
d) Both a and b
above.
Ans:
d) Both a and b above.
29. Which of
the following is false with respect to debentures?
a) They can be issued for cash.
b) They can be issued for consideration other
than cash.
c) They can be issued as collateral security.
d) They can be
issued in lieu of dividends.
Ans:
d) They can be issued in lieu of dividends.
30. 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
c) Debenture interest is a charge against
profits
d) The issue price
and redemption value of debentures cannot differ.
Ans:
d) The issue price and redemption value of debentures cannot differ.
31. 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.
Ans:
d) The face value and the carrying amount of debentures are equal.
32. Which of
the following is false about debentures?
a) Equity is owners’ stake and the debenture
is a debt
b) Rate of interest on debentures is fixed
c) Debenture holders get preferential
treatment over the equity holders at the time of liquidation
d) Interest on
debentures is an appropriation of profits.
Ans:
d) Interest on debentures is an appropriation of profits.
33. Which of the following
is not true about Debenture redemption reserve(DRR):
a) DDR 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.
Ans:
c) DRR is required in case of Fully convertible debenture.
34. Which of
the following statements are false if debentures redeemed out of capital?
a) DRR is not
created if debentures are redeemed out of capital.
b) Nominal value of debentures redeemed is
not transferred to DRR or General Reserve.
c) Debentures account is debited and bank
account is credited.
Ans:
a) DRR is not created if debentures are redeemed out of capital.
35. 10% Debenture
will come under _____________ of Balance Sheet (Schedule III)
a) Long term Borrowing
b) Current Liabilities
c) Non-Current Assets
d) Other current Liabilities
Ans: a) Long term Borrowing
36. Which of the
following is/are statutory book/s of a company?
a) Register of Charges
b) Register of Members
c) Register of Debenture holders
d) All of the above
Ans: d) All of the above
37. Match the following:
|
Debentures with no security |
Simple or Naked debentures |
|
Debentures with security |
Secured or Mortgage debentures |
|
Treated as negotiable instrument and transferred
by mere delivery |
Bearer debentures |
|
Which are payable after payment is made to first
debenture holders. |
Second debentures |
MCQ on Issue of Debentures
MCQ on Redemption of Debentures
State
the following statements whether ‘true’ or ‘false’
36. Premium on redemption of debentures is
transferred to sinking fund. True
37. As per the Companies Act, “Interest
accrued and due on debentures” should be shown Under Debentures.
True
38. Loss on issue of debentures account is a
revenue loss. False
39. Premium on redemption of debentures
account is shown under the ‘Securities Premium’ in the Balance Sheet. False
40. A debenture trust deed is an agreement
between the company and the trustees to look after the interest of debenture holders. True
41. Debenture includes debenture stock, bonds
or any other securities of a company whether constituting a charge on the
assets of the company or not. True
42. Debenture holders have right to receive interest
even if there is no profit. True
43. Debenture holders get their money back
only on the liquidation of the company. False
44. Debenture stock must be fully paid up. True
45. Debentures issued in exchange of existing debenture is known as
conversion. True
46. Debentures can be forfeited. False
47. Debenture holders have no voting rights. False
48. Sinking fund investment account always shows debit balance. True
49. In company final accounts debentures are recorded under
non-current liabilities. (Long term borrowings) True
50. Sinking fund account always shows which balance? Credit Balance [True]
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