Tag: introduction to debentures

Questions Related to introduction to debentures

Auction Rated Debentures (ARDs) are a hybrid of _________________.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. Shares and Debentures

  2. Shares and Commercial Papers

  3. Commercial Papers and Debentures

  4. Zero Interest Bonds and Deep Discount Bonds

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Correct Option: C

The person who deals in shares, debentures as independent operators are called as ____________.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. brokers

  2. jobbers

  3. tarawaniwalas

  4. manidiwalls

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Correct Option: B

State, with reasons, whether the following statements are True or False.
Debentures are never redeemed by the company.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. True

  2. False

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Correct Option: B
Explanation:

Debentures are never redeemed by the company. This statement is False. 
Reasons :
(i) Debenture is a document issued by a company under its company seal and signed by the Director, acknowledging the loan accepted by the company from a party under certain terms and conditions stated there in.
(ii) Debenture capital represents borrowed funds, which means, it has to be repaid after the expiry of certain period of time, with a fixed rate of return.
(iii) On the basis of redeemability there are two types of debentures : (a) Redeemable Debentures - Which are repaid by the company on the expiry of specified time. (b) Irredeemable Debentures - These debentures are repaid by the company according to its convenance. Therefore, it can't be said that debentures are never redeemed by the company. 

State, with reasons,whether the following statements are true or False.
Debenture holder are the owners of the company.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. True

  2. False

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Correct Option: B
Explanation:

This statement is False.
 Reasons: According to Webster's Dictionary, a Debenture is an interest-bearing certificate issued by a government or business, promising to pay to the holder specified sum at a specified date. In fact, there is no difference between Debentures and bonds. 
(1) Debenture is a loan taken by company for medium to long period. Debenture holder therefore is the creditor of the company. 
(2) Debenture capital is returnable and therefore has no permanency. Debenture holder earns interest as return. 
(3) Debenture holder cannot participate in management of company. They cannot take any decision on matters of the company. 
(4) Debenture holder has no voting rights on matters related to company like he cannot appoint Directors / Auditors of the company. 
(5) The real owner of the company is the equity shareholder. Equity shareholders are risk bearers of the company and they are having the voting rights and taking participation in management of the company. Hence Debenture holders are not the owners of the company. 

If own debenture of Rs. 1, 000 is purchased for Rs. 975 from the market by the company, the difference of Rs. 25 will be assumed?

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. Profit on redemption of debenture

  2. Loss on redemption of debenture

  3. Goodwill

  4. None of these

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Correct Option: A

Balance of Debenture Redemption Fund Account is transferred to _____________.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. Capital Reserve A/c

  2. Profit and Loss A/c

  3. General Reserve A/c

  4. None of these

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Correct Option: C

When the required rate of return is equal to the coupon rate, value of the redeemable bond is equal to its _____________.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. Market value

  2. Face value

  3. Present value of the stream of interest inflows

  4. Average of par values and maturity value

  5. None of the above

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Correct Option: B

The essential features of a debenture includes __________.

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. It is certificate of acknowledgement of debt

  2. It is issued under a common seal

  3. It is a part of long term borrowing

  4. all the the above

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Correct Option: D

Which of the following statements is false?

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. A company can issue convertible debentures.

  2. Debentures cannot be secured.

  3. A company can issue redeemable debentures.

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

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Correct Option: B

Which of the following is true with regard to 10% Debentures issued at a discount of 20%?

book keeping and accountancy company accounts part - 2 (accounting for debentures) introduction to debentures meaning and features of debentures meaning of debentures

  1. The carrying amount of debentures gets reduced each year at a rate of 20%.

  2. Issue price and the carrying amount of debentures are equal.

  3. At the time of redemption, the debenture holder will be paid the issue price.

  4. The face value and the carrying amount of debentures are equal.

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Correct Option: D