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Debentures redemption - class-XII

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Which of these is not a method of redemption of debentures ?

  1. Purchase in open market

  2. Auction of debentures

  3. Drawing of lots

  4. Payment in lump sum


Correct Option: B

Debentures can be redeemable at discount.

  1. True

  2. False


Correct Option: B
Explanation:

Debentures will be redeemed at a discount only when the company is able to buy the debentures in the open market at a price lower than the face value of the debentures.

When a company issues debenture, it usually mentions the terms on which they will be redeemed on their maturity.

  1. True

  2. False


Correct Option: A

Premium on redemption is a/an  ____________ of a company payable in future.

  1. liability

  2. asset

  3. income

  4. expense


Correct Option: A

The Debenture Redemption Reserve account appears on the liability side of the balance sheet under the head ___________.

  1. capital

  2. reserves and surplus

  3. non-current liabilty

  4. current liability


Correct Option: B

Debentures cannot be redeemed out of :

  1. Profits

  2. Provision

  3. Capital

  4. All the above


Correct Option: A
Explanation:

Debentures can be written-off either by debiting it to profit and loss or to Debentures cannot be issued at a premium and redeemable at par.

When the debentures are redeemed, the requisite amount of Debenture Redemption Reserve is transferred to ___________.

  1. statutory reserve

  2. general reserve

  3. revenue

  4. CRR


Correct Option: B

No DRR (Debenture Redemption Reserve) is required in case of privately placed debentures.

  1. True

  2. False


Correct Option: A

A price exclusive of the interest for the period for which the seller held the debentures is called _________________.

  1. Ex-interest price

  2. Cum-interest price

  3. Plus-interest price

  4. Additional-interest price


Correct Option: A

Withdrawal from DRR is permissible only after ____% of the debenture liability has been redeemed.

  1. 30

  2. 40

  3. 10

  4. 25


Correct Option: C

Preference shares may be redeemed out of________________.

  1. Proceeds of Debentures

  2. Proceeds of new issue of shares

  3. Out of divisible profits

  4. Both (b) and (c)


Correct Option: D

Company should created DRR equivalent to _____% of the amount of debenture issue before redemption of debenture can commence.

  1. 75

  2. 40

  3. 50

  4. 25


Correct Option: C

Premium on redemption of debentures account is recorded on issue of debentures.

  1. A real account

  2. A nominal account-income

  3. A personal account

  4. A nominal account-expenditure


Correct Option: C

As per SEBI Guidelines Debenture Redemption reserve is required to be created in case the company issue debentures with a maturity of __________.

  1. more than 18 months

  2. 2 years

  3. 10 years

  4. 5 years


Correct Option: A

Preference shares amounting to Rs. $2,00,000$ are redeemed at a premium of $5$% by issue of shares amounting to Rs. $1,00,000$ at a premium of $10$%. The amount to be transferred to capital redemption reserve ___________.

  1. Rs. $1,05,000$

  2. Rs. $1,00,000$

  3. Rs. $2,00,000$

  4. Rs. $1,11,000$


Correct Option: B

Which of the following accounts can be transferred to capital redemption reserve account?

  1. General reserve account

  2. Forfeited shares account

  3. Profit prior to incorporation

  4. Share premium account


Correct Option: A

Debentures premium cannot be used to ____________.

  1. write off the discount on issue of shares or debentures

  2. write off the premium on redemption of shares or debentures

  3. pay dividends

  4. write off capital loss


Correct Option: C

Capital redemption reserve account is prepared when ___________.

  1. redemption is done out of issue of fresh shares

  2. redemption is done out of profits of the company

  3. redemption is done through company's capital fund

  4. All of the above


Correct Option: B

Which of the following statements is false?

  1. Debenture is a form of borrowing fro public

  2. Normal rate of interest on debentures is specified on issue

  3. Debenture interest is a charge against profits

  4. The issue price and redemption value of debentures will always be equal


Correct Option: D

From the point of view of tenure, the debentures are classified as -

  1. Secured and unsecured Debentures

  2. Redeemable Debentures and Irredeemable Debentures

  3. Convertible Debentures and Non-convertible Debentures

  4. Registered Debentures and Bearer Debentures


Correct Option: B

Convertible Debentures are those debentures which are -

  1. convertible into equity only at the point of debenture holders.

  2. convertible into equity shares only at the option of company only.

  3. convertible into equity shares only at the option of debenture holders or company.

  4. convertible into any securities at the option of debenture holders or company.


Correct Option: D
Explanation:

convertible debenture is a type of long-term debt issued by a company that can be converted into stock after a specified period. Convertible debentures are usually unsecured bonds or loans meaning that there is no underlying collateral connected to the debt.

In the Balance Sheet of a company, Debenture Premium Account appears under the head:

  1. Share Capital

  2. Reserves & Surplus

  3. Non-Current Liabilities

  4. Current Liabilities


Correct Option: B

From the point of view of mode of Redemption, the debentures are classified as -

  1. Secured and unsecured Debentures

  2. Redeemable Debentures and Irredeemable Debentures

  3. Convertible Debentures and Non-convertible Debentures

  4. Registered Debentures and Bearer Debentures


Correct Option: C

Debenture Redemption Premium Account is a -

  1. Personal Account

  2. Real Account

  3. Nominal Account

  4. None of these


Correct Option: A
Explanation:

Premium on redemption of debentures is a personal account and it is a liability of the company which is payable on redemption.

X Ltd issues $500, 15\%$ Debentures of Rs$100$ each on $1st$ May at a discount of $10\%$ redeemable at a premium of $5\%$ after $4$ years. Interest was payable half yearly on $30th$ June and $31st$ December. The amount of interest accrued but not due to be shown in the balance sheet as at $31st$ March is-

  1. Rs$1,250$

  2. Rs$1,875$

  3. Rs$3,750$

  4. Rs$5,000$


Correct Option: B

Which of the following is not true about Debenture Redemption Reserve(DRR)?

  1. DRR created @ 50% of the amount of debentures issued before commencement of redemption

  2. Withdrawal from DRR can be made only after 10% of debenture liability has been redeemed

  3. DRR is required in case of fully convertible debenture

  4. DRR is not required in case of debentures with a maturity period of 18 months or less


Correct Option: C

On $1$st April X Lts. issued Rs$1,00,000   15\%$ Debentures of Rs$10$ each at $94\%$ redeemable at per as follows:

Yearend Nominal value of Total Debentures to redeemed
2 10%
3 20%
4 30%
5 40%

The amount of discount to be written off each year assuming that the company closes its accounts on financial year basis is -

  1. Rs$2,400, Rs1,800, Rs 1,200, Rs 600$

  2. $Rs 1,500, Rs 1,500, Rs 1,350, Rs 1,050, Rs 600$

  3. $Rs1,200$ each year

  4. None of these


Correct Option: B

On $1$st April X Lts. issued Rs$1,00,000   15\%$ Debentures of Rs$10$ each at $94\%$ redeemable at per as follows:

Year beginning Nominal value of Total Debentures to redeemed
2 10%
3 20%
4 30%
5 40%

The amount of discount to be written off each year assuming that the company closes its accounts on financial year basis is -

  1. Rs$1,500$ each year

  2. Rs$1,200$ each year

  3. Rs$2,000, Rs 1,800, Rs 1,400, Rs 800$

  4. None of these


Correct Option: C

When the owners debentures are cancelled any profit on cancellation is transferred to __________.

  1. General reserve

  2. Capital reserve

  3. P/L Account

  4. None of the above


Correct Option: B
Explanation:
When own debenture are purchased by the company from the open market, these can be purchased for two reasons, either for cancellation or for investments. Profit on account of cancellation of debenture is a capital profit and should be transferred to capital reserve account.

X. Ltd. issued $500, 15\%$ Debentures of Rs$100$ each at a discount of $10\%$ redeemable at a premium of $5\%$ after $4$ years. The amount of annual interest on Debentures is -

  1. Rs$6,750$

  2. Rs$7,500$

  3. Rs$7,875$

  4. Rs$7,125$


Correct Option: B

X.Ltd. issued Rs$1,00,000$ $12\%$ debentures of Rs$100$ each at a premium of $10\%$, which are redeemable after $10$ years at a premium of  The amount of loss on redemption of debentures to be written off every year= ?

  1. Rs$10,000$

  2. Rs$30,000$

  3. Rs$20,000$

  4. Rs$40,000$


Correct Option: C

Debenture premium cannot be used to -

  1. Write off the discount on issue of shares or debentures

  2. Write off the premium on redemption of shares or debentures

  3. Pay dividends

  4. Write off underwriting commission


Correct Option: C
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