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Types of issue of debentures - class-XII

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Debentures which are convertible into shares at the option of the shareholders according to the terms of the issue are known as ____________.

  1. optional debenture

  2. convertible debenture

  3. convertible shares

  4. flexible debenture


Correct Option: B

Which of these statement is not true about debenture holders?

  1. Debenture holders are like the lenders of the company

  2. Debenture holders have priority of payment of interest and amount

  3. In case of loss the debenture holders are not entitled to interest on the debenture

  4. Interest on debenture is an allowable expenses


Correct Option: C

Which of the following is incorrect?

  1. A company can issue irredeemable debentures

  2. A company can issue debentures with voting rights

  3. A company can buy its own shares

  4. A company can buy its own debentures


Correct Option: B

Use the following information for questions given below:
Consider the following data pertaining to A Ltd. as on March $31, 2006$:
Share Capital
Issued, subscribed and called-up $(20,000$ shares of $Rs. 100$ each) $Rs. 20,00,000$
Calls-in-arrear $Rs. 10,000$
Profit and loss account (Cr.) as on April $01, 2005\ Rs. 1,20,000$
Profit for the year $Rs. 2,60,000$
The company wants to create a Debenture Redemption Reserve and to transfer $Rs. 50,000$ every year out of profits to redeem the debentures.
The company declared $10$% dividends.
The amount of dividend declared will be _______________.

  1. $Rs. 33,000$

  2. $Rs. 21,000$

  3. $Rs. 1,99,000$

  4. $Rs. 2,00,000$


Correct Option: C

In case of an Issue of a debenture of Rs$100$ at $Rs110$, Rs$10$ is to be credited to:

  1. Securities Premium A/c

  2. Debenture Premium A/c

  3. Capital Redemption Reserve A/c

  4. Debenture Redemption Reserve A/c


Correct Option: A
Explanation:

If debentures are issued at a price more than its nominal value (face value) such an issue is called issue at a premium.

Redeemable debentures are those which are payable on the expiry of the ______ period either in lump sum or in installments during the life time of the company. 

  1. Specific

  2. Actual

  3. Indefinite

  4. Average


Correct Option: A
Explanation:

There are two type of debenture which are classified from the point of view of tenure i.e. 1. Redeemable debentures and 2. Irredeemable debentures.

Redeemable dentures are those which are payable on the expiry of the specific period either in lump sum or in installments during the life time of the company. Debentures can be redeemed either at par or at premium .

Debentureholders having a floating charge have priority in payment over _________________.

  1. Sundry Creditors

  2. Secured Creditors

  3. Unsecured Creditors

  4. Preferential Creditors


Correct Option: C
Explanation:

 A debenture is a document that lays down the terms and conditions of a loan, and provides clarity and security to lenders if the borrowing company becomes insolvent. Attaching a floating charge to the debenture offers further benefits, enabling the holder to rank above unsecured creditors when it comes to repayment.

The term debenture includes _________.

  1. debenture stock

  2. bonds

  3. any other securities of a company whether constituting a charge on the assets of the company or not

  4. all of the above


Correct Option: D

Debentures entails payment of fixed rate of interest until ____________.

  1. the company is not declared insolvent

  2. the principal sum is repaid

  3. the company desires not to pay

  4. the debenture holders resolves not to claim so


Correct Option: B

_____are those debentures where the debenture holder have no option to convert into equity.

  1. Optional debentures

  2. Flexible debentures

  3. Convertible debentures

  4. Non-convertible


Correct Option: D

Issue of debentures as collateral securities means issue of such debentures as _________.

  1. Subsidiary security

  2. Principal security

  3. In lieu of principal security

  4. None of the above


Correct Option: A
Explanation:

Issue of Debentures as CollateralDebentures issued as collateral security is secondary or parallel security for the original loan taken by the company. The lender can realize the collateral security in case borrower fails to make the payment of the original loan.

Collateral Security is a Subsidiary Security.

Which of the following statement is not true?

  1. Interest on debenture holders is to be paid whether there is profit or loss to the company

  2. There is restriction on utilization of premium on issue of shares

  3. Company can buy back its debentures

  4. Interest on debenture is not shown in Profit and Loss A/c


Correct Option: D

______ are secured by either a fixed charge or a floating charge.

  1. Naked debentures

  2. Unsecured debentures

  3. Mortgaged debentures

  4. Registered debentures


Correct Option: C

Debentures which are not secured by any charge upon any assets of the company are called __________.

  1. secured debenture

  2. naked debenture

  3. bearer debenture

  4. floating debenture


Correct Option: B

_______debentures are those which can be transferred by mere delivery.

  1. Naked

  2. Registered

  3. Bearer

  4. Floating


Correct Option: C

Non-convertible debentures refer to.

  1. Owner's capital

  2. Loan capital

  3. Short-term fund

  4. None of these


Correct Option: B

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.

  1. Both (I) and (II)

  2. Both (I) and (III)

  3. Both (II) and (III)

  4. All of (I), (II), (III) and (IV)


Correct Option: D

Interest payable on debentures is __________. 

  1. an appropriation of profits of the company

  2. a charge against profits of the company

  3. transferred to sinking fund interest A/c

  4. transferred to sinking fund A/c


Correct Option: B

In case of debentures issued as collateral securities, the lender is entitled to ____________.

  1. interest only on the amount of loan

  2. interest on loan as well debentures issued as collateral security

  3. interest only on debentures issues as collateral security

  4. None of the above


Correct Option: A

Which of the following statements is false?

  1. A company can issue convertible debentures

  2. Debentures cannot be secured

  3. A company can issue redeemable debentures

  4. Debenture have no right to participate in profits over and above their fixed interest.


Correct Option: B
Explanation:

A debenture is a type of debt instrument unsecured by collateral. Since debentures have no collateral backing, debentures must rely on the creditworthiness and reputation of the issuer for support. 

Companies may issue the debentures as security against loans taken from banks/financial institutions as _______.

  1. Principal

  2. Primary

  3. Collateral

  4. Chargeable


Correct Option: C
Explanation:

Debentures can be issued as a collateral security against the loan taken from banks or financial institutions.

Debentures can be_____.
a. Mortgage Debenture or Simple Debenture.
b. Registered Debenture or Bearer Debenture.
c. Redeemable Debenture or Irredeemable Debenture.
d. Convertible Debenture or Non-convertible Debenture

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

  4. All of (a), (b), (c) and (d) above


Correct Option: D
Explanation:

Debenture is a written instrument acknowledging a debt under the common seal of the company. There are various types of debentures: Secured and unsecured debentures, redeemable and irredeemable debentures, Convertible and non-convertible debenture, registered and bearer debentures, Specific coupon rate and zero coupon rate debentures etc. 

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