Tag: accounting effects for redemption of debentures

Questions Related to accounting effects for redemption of debentures

Which of the following statements is false?

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. At maturity, debenture holders get back their money as per the terms and conditions of redemption.

  2. Debentures cab be forfeited for non payment of call money.

  3. In company's balance sheet, debentures are shown under secured loans.

  4. Interest on debentures is charged against profits.

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Correct Option: B

Transferring Debenture Redemption Fund A/c balance to General Reserve is the ____ step involved in working of sinking fund method.

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. 8

  2. 9

  3. 10

  4. 11

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Correct Option: D

After redemption of debentures, the balance of debenture sinking fund is transferred to:

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. Debenture account

  2. General reserve account

  3. Profit & loss account

  4. Capital reserve account

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Correct Option: B

Accounting entry for recording loss on the realization of sinking fund investment is:

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures
  1. Sinking fund account Sinking fund investment account  Dr.  Cr.
  2. Sinking fund investment account Sinking fund account  Dr.  Cr.
  3. Profit an loss account Sinking fund investment account  Dr.  Cr.
  4. Sinking fund investment account Profit and Loss account  Dr.  Cr.
Show answer
Correct Option: A
Explanation:

If Sinking fund investments are sold—at loss:

Sinking fund a/c Dr. (with amount of loss)

To Sinking fund investment a/c (with book value of investments sold)

(Being sinking fund investments sold at loss)

Which of the following should not be considered as a part of purchase consideration?

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. Payment to equity shareholders

  2. Payment to preference shareholders

  3. Payment to debentureholders

  4. Cash payment to shareholders

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Correct Option: C
Explanation:

The payments to the debenture holders are not included in the purchase considerations.

The purchase consideration does not include the amount to be paid to the debentureholders by the transferee company.

Where all the debentures are redeemed, the balance left in the debentures sinking fund account is transferable to:

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. Debenture account

  2. Sinking fund investment account

  3. Capital redemption reserve account

  4. General reserve account

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Correct Option: D

Accounting entry for making the provision for the redemption of debentures is:

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures
  1. Profit and loss accountSinking fund account  Dr.  Cr.
  2. Profit and loss appropriation accountSinking fund account  Dr.  Cr.
  3. Profit and loss adjustment accountSinking fund account  Dr.  Cr.
  4. Debentures accountSinking fund account  Dr.  Cr.
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Correct Option: B

When all the debentures are redeemed the balance left in the debentures sinking fund account is transferred to:

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. General Reserve account

  2. Sinking Fund Investment account

  3. Debenture account

  4. Capital Redemption Reserve account

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Correct Option: A

____________ is created to provide fund for redemption of debentures as and when they become due for redemption.

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. Investment fluctuation reserve.

  2. Sinking fund

  3. Dividend equalization reserve

  4. Debenture redemption reserve

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Correct Option: D

___________ is created to provide for not only depreciation on the assets but also to provide sufficient funds for replacement of the assets at the end of its life.

elements of accounts company accounts - redemption of debentures redemption by payment in lump sum accounting effects for redemption of debentures redemption of debentures

  1. Plant and Machinery replacement fund.

  2. Sinking fund

  3. Dividend equalization reserve

  4. Debenture redemption reserve

Show answer
Correct Option: B
Explanation:

A sinking fund method is a technique for depreciating an asset in bookkeeping records while generating money to purchase a replacement for the assets when it reaches the end of its useful life.