Questions for Chapter-Issue and redemption of debentures 

  • Board
    CBSE
  • Textbook
    NCERT
  • Class
    Class 12
  • Subject
    Accountancy
  • Chapter
    Questions for Chapter-Issue and redemption of debentures 
  • Chapter Name
    Issue and redemption of debentures
  • Category
    CUET (Common University Entrance Test) UG

MCQ-Based Questions for CUET Accountancy chapter-Issue and redemption of debentures 

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Practice Questions for CUET Accountancy chapter-Issue and redemption of debentures SET-1

Accounts - MCQ on Issue and redemption of debentures

Class XII

Q.1. A document under company’s seal which provides for the repayment

a) share

b) Debenture

c) Share warrant

d) None

Answer:

B) Debenture

Explanation: - debenture is a document for repayment

Q.2. An instrument of acknowledgement of debt.

a) debenture

b) Share

c) Bond

d) Share warrant

Answer:

c) Bond

Explanation: - Bond is an instrument of acknowledge of debt.

Q.3. A shareholder is a/an ______ of the company and a debenture holder is only a _______

a) owner and creditor

b) creditor and owner

c) debtor and creditor

d) all

Answer:

a) Owner and creditor

Explanation: - a shareholder is an owner of the company and a debenture holder is only a loan creditor

Q.4.return of shares is_____ and return on debenture is _______

a) interest and dividend

b) dividend and interest

c) dividend and dividend

d) none

Answer:

Dividend and interest

Explanation: - return of shares is dividend and return on debenture is interest

Q.5. Which one is not true:-

a) amount of shares is not returned during the life of the company

b) share cannot be issued at a discount

c) shares can be converted into debentures

d) B and C

Answer:

D) B and C

Explanation: - share can be issued at a discount; shares cannot be converted into debentures.

A 5.those debenture where a charge is created on the assets of the company for the purpose of payment in case of default is:-

a) unsecured debenture

b) secured debenture

c) contingent liability

d) Any one of above.

Answer:

b) Secured debenture

Explanation: - those debentures where a charge is created on the assets of the company for the purpose of payment in case of default is secured debenture.

Q.7. Do not have a specific a charge on the assets of the company:-

a) unsecured debenture

b) secured debenture

c) contingent liability

d) any one of above

Answer:

Unsecured debentures

Explanation: - unsecured do not have a specific a charge on the assets of the company

Q.8. Repayment of amount on the expiry of the specific period:-

a) redeemable debenture

b) Irredeemable debenture

c) Redeemable share

d) Irredeemable share

Answer:

Redeemable debenture

Explanation: - redeemable debentures are those which are payable on the expire of the specific period.

Q.9. Debentures are issued with a specified rate of interest which is called:-

a) face value

b) market value

c) coupon rate

d) token rate

Answer:

C) Coupon rate

Explanation: - debentures are issued with a specified rate of interest which is called coupon rate

Q.10.debentures that is transferred by way of delivery:-

a) Registered debenture

b) Bearer debenture

c) None

d) All

Answer:

b) Bearer debenture

Explanation: - Bearer debentures that are transferred by way of delivery

Q.11. Debentures can be issued

a) at par

b) at discount

c) at premium

d) all

Answer:

D) all

Explanation: - debentures can be issued at par, at discount, at premium

Q.12.debentures issued other than cash are:-

a) Registered

b) Bearer

c) Collateral

d) None

Answer:

c) Collateral

Explanation: - Collateral security

Q.13. Debentures issued at price is equal to the face value are issued:-

a) at par

b) at premium

c) at discount

d) all

Answer:

At par

Explanation: - issue of debentures at face value called issue of debentures at par

Q.14. Subsidiary security besides the primary security is called

a) debentures

b) shares

c) collateral

d) none

Answer:

C) Collateral security

Explanation: - a security besides the primary security

Easy

Q.15. When the debentures are redeeming end at the end of specified period:-

a) fluctuating installment

b) fixed installment

c) either a or b

d) none

Answer:

B) Fixed installment method:-

Explanation: - fixed installment method

Q.16. Debenture cab be redeemed by:-

a) payment in lump sum

b) payment in installment

c) purchase in the open market

d) all

Answer:

D) all

Explanation: - debenture can be redeemed by 4 ways

Q.17. What is SEBI:-

a) share exchange board of India

b) security exchange board of India

c) both a and b

d) none

Answer:

b)

Explanation: - securities exchange board of India

Q.18. A company issuing debentures with a maturity period of not more than:-

a) 12 months

b) 18 months

c) 15 months

d) 2 years

Answer:

b)

Explanation :- 18 months

Q.19. Debenture may be listed as:-

a) Debenture are the instruments of loan capital

b) Debentures carry a fixed rate of interest

c) Normally debentures are secured

d) all

Answer:

(d)

Explanation: - all

Q.20. Who can be trustee of Trust deed?

a) a scheduled bank carrying on commercial activities

b) An insurance company

c) Body corporate

d) All

Answer:

D)

Explanation: - all

Q.21.Cum interest Quotation:-

a) cost of debenture = price paid – interest for the expired period

b) cost of debenture = price paid + interest for the expired period

c) cost of debenture = price paid * interest for the expired period

d) none

Answer:

a)

Explanation:- cost of debenture = price paid – interest for the expired period

Q.22. Debenture holders who are having an option to convert a part of the amount to equity share are:-

a) partly convertible

b) fully convertible

c) convertible share

d) none

Answer:

a)

Explanation:- Partly convertible

Q.23.thr right to convert the full amount of debenture into equity share called

a) partly convertible

b) fully convertible

c) convertible share

d) none

Answer:

b)

Explanation: - fully convertible

Q.24.Bond which does not have a specified rate of interest

a) coupon bond

b) equal coupon

c) zero coupon

d) none

Answer:

C)

Explanation: - zero coupon bond

Q.25.function of trustee

a) to call for periodic reports from the body corporate

b) to enforce security in the interest of debenture holder

c) to ensure that company is carrying out its obligations under trust deed properly

d) all

Answer:

d)

Explanation: - all

Practice Questions for CUET Accountancy chapter-Issue and redemption of debentures SET-2

Q.26. An option allows the issuer to redeem the bond on or after specified period but before the full maturity period at a pre-determined price

a) call option

b) put option

c) either a or b

d) none

Answer:

a)

Explanation: - Call option

Q.27. An option allows the bond holder to return the bond to the borrower:-

a) call option

b) put option

c) either a or b

d) none

Answer:

b)

Explanation: - Put option

Accounts - MCQ on Issue and Redemption of debentures

Class XII

Q.1. Debenture is similar to

a. equity share.

b. preference share.

c. Bond.

d. current liability.

Answer:

(c)

Explanation: Debentures and bonds are acknowledgement of debt.

Q.2. “Debentures issued at discount and redeemable at par”. The account, which will be credited at the time of issue of debentures, would be

a. discount on issue of debentures account.

bank account.

percentage debentures account.

premium on redemption of debentures account.

Answer:

c

Explanation: At the time of issue of debentures, we will credit debentures account.

Q.3. Registered debentures are

a. fully recorded in the company.

transferred by mere delivery.

issued by registered companies.

convertible debentures.

Answer:

(d)

Explanation: Registered debentures are those debentures, where the name, address, and number of debentures held by debenture holders are registered with the company.

Q.4. Debentures carrying unspecific rate of interest is called

a. specific coupon rate debentures.

zero coupon rate debentures.

convertible debentures.

bearer debentures.

Answer:

(b)

Explanation: Zero coupon rate debentures do not carry specific rate of interest.

Q.5. The finances raised through debentures are also known as

a. current liabilities.

short term loans.

long term loans.

owners capital.

Answer:

(c)

Explanation: The finances raised through debentures are also called long term loans.

Q.6. Exemption to the creation of DRR is given to

a. foreign companies.

b. a company issuing debentures for not more than 36 months.

c. private companies.

d. a company issuing debentures with maturity period of not more than 18 months.

Answer:

(d)

Explanation: A company issuing debentures with maturity period of not more than 18 months is exempted from creation of DRR.

Q.7. Debenture holders are paid the

a. interest before the dividend to share holders.

b. dividend before ordinary share holders.

c. interest after the dividend to ordinary share holders.

d. dividend with other share holders.

Answer:

(a)

Explanation: Debentures are paid interest before preference and ordinary shares are paid the dividend.

Q.8. When, debentures are issued at a discount and are redeemable at a premium, the account to be debited at the time of issue is

a. debentures account.

b. premium on redemption of debentures account.

c. loss on issue of debentures account.

d. discount on issue of debentures account.

Answer:

(c)

Explanation: When debentures are issued at a discount and are redeemable at a premium, loss on issue of debentures account is debited at the time of issue. It is the loss of capital nature.

Q.9. Deep discount bonds are

a. issued at a price substantially below the maturity value.

b. issued at very high rate of interest.

c. irredeemable.

d. issued as a collateral security.

Answer:

(a)

Explanation: Deep discount bonds are issued at a price substantially below the maturity value. They do not carry interest.

Q.10. The following journal entry appears in the books of X Co. Ltd

Bank a/c ………… Dr.

Loss on issue of debentures a/c…….. Dr.

To 12% Debentures a/c

To Premium of redemption of debentures a/c

4,75,000

75,000

5,00,000

50,000

The debentures have been issued at a discount of

a. 15 %.

b. 10 %.

c. 5 %.

d. 2.5 %.

Answer:

(c)

Explanation: Loss on issue of debentures is Rs. 75,000. Out of it Rs. 50,000 is the premium on redemption of debentures. Hence the discount on issue of debentures is Rs. 25,000. It is 5% of Rs. 5,00,000.

Q.11. X Ltd. purchased assets worth Rs. 28,80,000. It issued debentures of Rs. 100 each at a discount of 4 percent in full satisfaction of the purchase consideration. The number of debentures to be issued is

a. 28,800.

b. 30,000.

c. 32,000.

d. 40,000.

Answer:

(b)

Explanation: 28,80,000 /96 = 30,000. Debentures worth Rs. 30,00,000 were issued at a discount of 4%.

Q.12. Discount on issue of debentures is shown in the balance sheet under the head

a. profit and loss account.

b. miscellaneous expenditure.

c. debentures account.

d. secured loans.

Answer:

(b)

Explanation: Discount on issue of debentures is shown under the head Miscellaneous Expenditure in the balance sheet.

Q.13. When, debentures are issued at par and are redeemable at a premium, the loss on such an issue is debited to

a. profit and loss account.

b. debenture allotment account.

c. loss on issue of debentures.

d. premium on redemption of debentures.

Answer:

(c)

Explanation: When debentures are issued at par and are redeemable at a premium, the loss on such an issue is debited to loss on issue of debentures account.

Q.14. 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. vendor’s account.

d. goodwill account.

Answer:

(b)

Explanation: If assets are more than the purchase consideration it is credited to the capital reserve account.

Q.15. When all the debentures are redeemed, balance in the debenture redemption fund account is transferred to

a. capital reserve.

b. profit and loss account.

c. general reserve.

d. profit and loss appropriation account.

Answer:

(c)

Explanation: When all the debentures are redeemed, balance in the debenture redemption fund account is transferred to the general reserve.

Practice Questions for CUET Accountancy chapter-Issue and redemption of debentures SET-3

Q.16. Collateral security means

a. secondary or subsidiary security.

b. principal or main security.

c. issue of shares.

d. security of the company.

Answer:

(a)

Explanation: Collateral security is secondary or subsidiary security given beside main security.

Q.17. Own debentures are those debentures of the company, which the company

a. allots, to its own promoters.

b. allots, to its employees.

c. allots, to its directors.

d. purchases from the market and keeps them as investments.

Answer:

(d)

Explanation: Own debentures are those debentures, which the company purchases from the market and keeps them as investments. The company itself issues these debentures.

Q.18. Profit on cancellation of own debentures is transferred to

a. profit and loss appropriation account.

b. debenture redemption reserve.

c. capital reserve.

d. general reserve.

Answer:

(c)

Explanation: Profit on cancellation of own debentures is transferred to capital reserve. It is a capital gain.

Q.19. When debentures are redeemed out of profits, an equal amount is transferred to

a. general reserve.

b. debenture redemption reserve.

c. capital reserve.

d. profit and loss appropriation account.

Answer:

(b)

Explanation: When debentures are redeemed out of profits, an equal amount is transferred to debenture redemption reserve. It is done as per SEBI guidelines.

Q.20. Debenture suspense account is shown under the head

a. miscellaneous expenditure.

b. current liabilities and provisions.

c. secured loans.

d. unsecured loans.

Answer:

(a)

Explanation: Debenture suspense account is debited at the time of issue of debentures as a collateral security. They are shown in the assets side of the balance sheet under the head miscellaneous expenditure.

Q.21. Excess value of purchase consideration over net assets at the time of purchase of business is debited to

a. general reserve.

b. capital reserve.

c. vendor’s account.

d. goodwill account.

Answer:

(d)

Explanation: Excess value of purchase consideration over net assets at the time of purchase of business is debited to the goodwill account.

Q.22. If, vendors are issued debentures of Rs. 80,000 in consideration of net assets of Rs. 1,00,000, the balance of Rs. 20,000 will be shown, in

a. profit and loss account.

b. goodwill account.

c. general reserve.

d. capital reserve account.

Answer:

(d)

Explanation: The balance will be transferred to the capital reserve account.

Q.23. Discount on issue of debentures is a type of

a. fixed assets.

b. current assets.

c. real assets.

d. fictitious assets.

Answer:

d

Explanation: Discount on issue of debentures is a fictitious asset and is shown under the head Misc. expenditure.

Q.24. Debentures issued as a collateral security is debited to

a. debenture account.

b. debenture suspense account.

c. bank account.

d. collateral security account.

Answer:

(b)

Explanation: Debentures issued as a collateral security is debited to debenture suspense account. The debenture liability may or may not arise in future.

Q.25. In case debentures of Rs. 4,00,000 are issued at par and payable at a premium of 10%, the premium account will be debited to

a. securities premium account.

b. premium on redemption of debentures account.

c. loss on issue of debentures account.

d. debentures account.

Answer:

(c)

Explanation: Loss on issue of debentures account is debited in this case.

Q.26. Debentures, which are transferable by mere delivery, are

a. registered debentures.

b. delivery debentures.

c. bearer debentures.

d. first debentures.

Answer:

(c)

Explanation: Bearer debentures are those debentures, which are transferable by mere delivery.

Q.27. Trust deed is created for the protecting the interest of

a. company.

b. shareholders.

c. creditors.

d. debenture holders.

Answer:

(d)

Explanation: Debenture trust deed is a document created by the company whereby trustees are appointed to protect the interest of debenture holders.

Q.28. If, shares are issued ‘Share capital a/c’ is credited, when debentures are issued the account to be credited, is

a. debenture application.

b. debenture allotment.

c. % debentures.

d. debenture capital.

Answer:

(c)

Explanation: Credit balance of share capital represents issue of shares in the same way credit balance in debentures account show issue of debentures.

Q.29. Purchase consideration is Rs. 1,10,000 and is settled by issue of debentures having face value of Rs. 100. The number of debentures to be issued, when they are issued at a discount of Rs. 10, would be

a. 500.

b. 1,000.

c. 1,100.

d. 1,222.

Answer:

(d)

Explanation: The formula is: Purchase consideration/ Issue price of debenture

= 1,10,000/90

= 1,222

Q.30. Debentures are shown in the balance sheet under the head

a. unsecured loans.

b. secured loans.

c. current liabilities and provisions.

d. misc. expenditure.

Answer:

d

Explanation: Debentures are shown in the balance sheet under the head misc. expenditure. Debentures are the secured loans of the company.

Q.31. The account to be credited in case of issue of debentures at a premium, redeemable at par is

a. premium on redemption of debentures account.

b. securities premium account.

c. bank account.

d. loss on issue of debentures account.

Answer:

(b)

Explanation: When debentures are issued at a premium, securities premium account is credited.

Q.32. Debentures issued as a collateral security is credited to

a. debenture account.

b. debenture suspense account.

c. bank account.

d. collateral security account.

Answer:

(a)

Explanation: Debentures issued as a collateral security is credited to percentage debentures account.

Q.33. Interest on debentures is usually paid

a. annually.

b. half yearly.

c. quarterly.

d. monthly.

Answer:

(b)

Explanation: The companies usually pay interest on debentures half-yearly.

Q.34. Non-convertible debentures are those debentures, which are

a. only partly convertible into equity shares.

b. non-convertible into equity shares.

c. irredeemable debentures.

d. not secured at all.

Answer:

(b)

Explanation: Non-convertible debentures cannot be converted into equity shares of the company.

Q.35. A debenture issued at Rs. 95, repayable at Rs. 105, loss on issue of debentures will be debited with

a. Rs. 110

b. Rs. 105

c. Rs. 10

d. Rs. 5

Answer:

c

Explanation: Loss on issue of debenture is debited with discount on issue plus premium on redemption of debentures.

Q.36. Trust deed means

a. a deed of trust between the partners.

b. a deed between shareholders and debenture holders.

c. a document created by the company issuing debentures.

d. a document created by company issuing shares.

Answer:

(c)

Explanation: A company issuing debentures by way of public issue is required to appoint trustees and execute a trust deed.

Q.37. Securities premium received on issue of debentures at a premium is credited to

a. debenture premium account.

b. share premium account.

c. securities premium account.

d. % debentures account.

Ans c

Explanation: Premium received on issue of debentures is credited to securities premium account only.

Q.38. In case of purchase of business, when assets are more than the liabilities, difference is transferred to

a. goodwill account.

b. capital reserve account.

c. vendor account.

d. assets account.

Answer:

(b)

Explanation: In case of purchase of business, when assets are more than the liabilities, the difference denotes the profit. It is a capital profit and is transferred to the capital reserve account.

Q.39. In case of purchase of business, when liabilities are more than the assets, the difference is transferred to

a. goodwill account.

b. capital reserve account.

c. vendor account.

d. assets account.

Answer:

a.

Explanation: The difference is transferred to the goodwill account, as the balance shortage of assets must be the goodwill purchased by the company.

Q.40. Purchase consideration is Rs. 1,10,000 and is settled by an issue of debentures having face value of Rs. 100. The number of debentures to be issued, when they are issued at a premium of Rs. 10, would be

a. 500 debentures.

b. 1,000 debentures.

c. 1,100 debentures.

d. 1,222 debentures.

Answer:

(b)

Explanation: The formula is: Purchase consideration/ Issue price of debenture

= 1,10,000/110

= 1,000

Q.41. Charge means

a. securing the loan by mortgaging specific assets.

b. interest paid on debentures.

c. interest received on investment.

d. premium on issue of debentures.

Answer:

(a)

Explanation: Charge means securing loan by mortgaging specific assets. If the company fails to meet its obligations, the lender can secure payment for assets mortgaged.

Q.42. Purchase consideration is Rs. 1,10,000 and is settled by issue of debentures having face value of Rs. 100. The number of debentures to be issued, when they are issued at par, would be

a. 500.

b. 1,000.

c. 1,100.

d. 1,222.

Answer:

(c)

Explanation: The formula is: Purchase consideration/ Issue price of debenture

= 1,10,000/100

= 1000.

Q.43. Purchase consideration is Rs. 1,10,000 and is settled by issue of debentures having face value of Rs. 100. The amount of cash to be paid to debenture holders will be

a. Rs. 1,10,000.

b. Rs. 1,100.

c. Rs. 22.

d. Rs. 20.

Answer:

(d)

Explanation: Number of debentures to be issued = 1,10,000/90

= 1,222.22 debentures

1,222 debentures will be issued and balance will be paid in cash.

1,10,000 – 1,09,980 = Rs. 20

Q.44. Z Ltd. purchased plant and machinery for Rs. 2,00,000. The company paid Rs. 65,000 as cash and balance by an issue of debentures of Rs. 100 each at a discount of 10 per cent. The number of debentures to be issued would be

a. 2,500.

b. 2,000.

c. 1,800.

d. 1,500.

Answer:

(d)

Explanation: Amount for which the issue of debentures is required = Rs. 2,00,000 – 65,000 = Rs. 1,35,000.

Number of debentures to be issued = 1,35,000/90 = 1,500 debentures.

Q.45. Coupon rate means

a. specified rate of interest.

b. rate of dividend on preference shares.

c. rate of interest is nil.

d. interest as per profits.

Answer:

c.

Explanation: Specific coupon rate are issued with specified rate of interest, which is called coupon rate.

Q.46. A company is required to create DRR of an amount equivalent to

a. 100%.

b. 50%.

c. 25%

d. 10%

Answer:

(b)

Explanation: SEBI has issued guidelines whereby companies must respect to DRR before debentures are redeemed. A company is required to create a Debenture Redemption Reserve (DRR) of an amount equivalent to 50% of the amount of debenture issue before redemption of debenture commences.

Q.47. Debenture holders are the

a. owners of the company.

b. creditors of the company.

c. debtors of the company.

d. trustees of the company.

Answer:

(b)

Explanation: Debenture holders provide long-term loan to the company. They are the creditors of the company.

Q.48. Debentures are shown in company’s balance sheet as

a. current liabilities and provision.

b. unsecured loans.

c. secured loans.

d. short-term loans.

Answer:

(c)

Explanation: Debentures are shown in company’s balance sheet under the head secured loans as they are secured against the charge of assets of the company.

Q.49. Premium on redemption is a nature of

a. real account.

b. nominal account.

c. personal account.

d. personal or Nominal account.

Answer:

c

Explanation: Premium on redemption of debentures is a personal account as the liability of the company arises towards debenture holders.

Q.50. When, debentures are issued at a discount, it is a good policy to write off the discount

a. in the year of redemption of debentures.

b. in the year of issue of debentures.

c. within five years of the issue of debentures.

d. during the life of debentures.

Answer:

(d)

Explanation: It is prudent and good accounting policy to write off debentures during the life of debentures as the cost matches the revenue.

Q.51. Debentures account is always credited with

a. issue price.

b. nominal value.

c. increased value (including premium).

d. decreased value (excluding discount if any).

Answer:

(b)

Explanation: Debentures account is always credited with the nominal value of debentures whether it is issued at premium or discount.

Q.52. F Ltd. purchased machinery from G. Company for a book value of Rs. 4,00,000. The consideration was paid by issue of 10% debentures of Rs. 100 each at a discount of 20%. The debenture account will be credited with

a. 3,20,000.

b. 4,00,000.

c. 4,80,000.

d. 5,00,000.

Answer:

(d)

Explanation: Rs. 5,00,000 debentures will be issued at a discount of 20%.

4,00,000 /80 = 5000 x 100 = 5,00,000.

Q.53. The debentures are considered as

a. short-term loan.

b. long-term loan.

c. current liabilities.

d. current assets.

Answer:

(b)

Explanation: The debenture is treated as a long-term loan.

Q.54. Once the debentures are redeemed, DRR is transferred to

a. capital reserve.

b. general reserve.

c. debentures account.

d. reserve capital.

Answer:

(b)

Explanation: Once the debentures are redeemed, DRR is transferred to general reserve. The following entry is passed-

DRR a/c …………..Dr

To General reserve

Q.55. Exemption to the creation of DRR is given to

a. foreign companies.

b. a company issuing debentures for not more than 36 months.

c. private companies.

d. infrastructure companies.

Answer:

(d)

Explanation; Infrastructure companies are not required to create DRR.

Q.56. If, a debenture is of Rs. 80 and it is issued at a premium of Rs. 10 per debenture, then the number of debentures a company is required to issue for satisfying the purchase consideration of Rs. 28,80,000, would be

a. 40,000.

b. 36,000.

c. 32,000.

d. 28,800.

Answer:

(c)

Explanation: Number of debentures to be issued = 28,80,000/90

= 32,000.

Q.57. SEBI guidelines in respect of redemption of debentures are to protect the interest of

a. shareholders.

b. creditors.

c. bankers

d. debenture holders.

Answer:

(d)

Explanation: SEBI guidelines are for the protection of interest of debenture holders. It includes the creation of DRR.

Q.58. When own debentures are cancelled, profit on cancellation is transferred to

a. profit and loss account.

b. general reserve.

c. capital reserve.

d. profit and loss appropriation account.

Answer:

(c)

Explanation: It is the gain of capital nature therefore it is transferred to the capital reserve account.

Q.59. Debentures carry many advantages over shares. One advantage of debenture is

a. fixed rate of interest.

b. fixed dividend paid.

c. voting right.

d. unlimited liability.

Answer:

(a)

Explanation: Debentures are issued with fixed rate of interest.

Q.60. Interest on own debentures is credited to

a. profit and loss account.

b. profit and loss appropriation account.

c. debentures account.

d. loss on issue of debentures account.

Answer:

a

Explanation: Interest on own debentures is an income from investment and is credited to the profit and loss account.

Q.61. Cum-interest implies

a. the interest receivable for the future period of time.

b. the interest paid on debentures.

c. the price quoted including the interest for the expired period.

d. the price quoted excluding the interest for the expired period.

Answer:

(c)

Explanation: Sometimes debentures are purchased in the open market on a date other than the date of interest. When the price quoted includes the interest for the expired period, the quotation is said to be cum interest.

Q.62. The ex-interest quotation is

a. Total cash paid = Price of debenture + Interest accrued.

b. Cost of debenture = Price paid – Interest for the expired period.

c. Total cash paid = Price of debenture - Interest accrued.

d. Cost of debenture = Price paid + Interest for the expired period.

Answer:

(a)

Explanation: In this case the purchaser of the debentures has to pay the interest the interest for the expired period in addition to the cost of debenture.

Q.63. Cum-interest implies

a. the interest receivable for the future period of time.

b. the interest paid on debentures.

c. the price quoted including the interest for the expired period.

d. the price quoted excluding the interest for the expired period.

Answer:

d

Explanation: Cum-interest implies the price quoted excluding the interest for the expired period.

Q.64. Redemption of debentures by conversion means

a. paying back the amount to debentures holders in lump sum.

b. converting debentures into new class of shares or debentures.

c. paying back the amount to debenture holders after a new issue of shares or debentures.

d. conversion of shares into debentures.

Answer:

(b)

Explanation: Sometimes debentures are redeemed by converting them into new class of shares or debentures. If debenture holders find this offer beneficial to them, they take advantage of this offer.

Q.65. The account that will be credited in case of conversion of 8% debentures into 10% debentures would be

a. 8% debentures account.

b. 10% debentures account.

c. new debentures account.

d. bank account.

Answer:

(b)

Explanation: Since 10% debentures are newly issued debentures hence 10% debentures account will be credited at the time of conversion.

Q.66. Following are the methods of redemption of debentures except

a. on maturity in lump-sum

b. by draw of lots

c. by proceeds of fresh issue of shares or debentures

d. by conversion

Answer:

(c)

Explanation: On maturity in lump sum, by draw of lots, by conversion, all are the methods of redemption of debentures. Except by proceeds of fresh issue of shares and debentures.

Q.67. Redemption of debentures by conversion means

a. paying cash to the debenture holders.

b. changing debentures into shares.

c. purchase of debentures from the open market.

d. cancellation of own debentures.

Answer:

(b)

Explanation: Debentures are redeemed by converting them into new class of shares or debentures.

Q.68. The source of finance for the redemption of debentures is?

a. out of profits.

b. conversion.

c. purchase in the open market.

d. installment method.

Answer:

(a)

Explanation: Profits can be used for the redemption of debentures.