The questions given here for practice by the students, are based on actual examination. Students must do these after preparing the chapter to have an accurate idea of their preparation.

1. Sunflower Ltd. took up a loan from a SBI and issued its 8% Debentures as Collateral Security. The SBI:

a) will be entitled to interest on such debentures.

b) will be entitled to interest on primary security.

c) will not be entitled to interest on such debentures.

d) will not be entitled to interest on loan taken up from the bank.

2. City Ltd. purchased machinery from CT Ltd. for ₹8,00,000. The consideration was paid by issue of 9% Debentures of ₹1,000 each at a discount of 20%. The 9% Debentures account is credited with:

a) ₹10,40,000

b) ₹10,00,000

c) ₹9,60,000

d) ₹6,40,000

3. Tinky Ltd. took over assets of ₹12,00,000 and liabilities of ₹ 4,00,000 of Minky Ltd. for an agreed purchase consideration of ₹9,00,000. The amount was payable by issue of 12% debentures of ₹100 each at 10% discount. The number of debentures issued will be:

a) 9,000

b) 8,000

c) 10,000

d) 11,000

4. When debentures are issued at par and redeemable and premium the loss on such an issue is debited to:

a) profit and loss account

b) debenture application and allotment account

c) loss on issue of debentures account

d) discount on issue of debentures account

5. Premium received on issue of debentures may be utilised for writing off:

a) premium allowed on redemption of debentures

b) writing off preliminary expenses

c) writing off discount allowed on issue of shares

d) all of the above

6. Which of the following statements is incorrect?

a) Interest on debentures is a charge and not an appropriation.

b) Debenture holders do not have voting rights.

c) Debentures cannot be converted into shares.

d) Debentures can be issued at discount.

Read the following hypothetical situation and answer questions number 7. and 8. on the basis of given information.

On 1st April, 2022, Shruti Ltd. issued 5000, 9% Debentures of ₹ 100 each at 5% premium, redeemable at a premium of 10% after 3 years.

7. The total interest due on debentures for the year ending 31st March, 2023 will be:

a) ₹25,000

b) ₹40,000

c) ₹50,000

d) ₹75,000

8. Loss on Issue of Debentures Account should be debited by which of the following amount?

a) ₹50,000

b) ₹40,000

c) ₹75,000

d) ₹25,000

9. Which of the following statements is correct about debentures:

a) New Debentures can be issued at par/premium but not at discount

b) Debenture interest is calculated on issue price

c) Interest is not paid on Debentures issued as Collateral Security

d) Interest on debentures is an appropriation of profits

10. A machine was purchased by Shagun Ltd. for ₹11,00,000 from Moon. Shagun Ltd. issued 8% Debentures of ₹50 each against purchase consideration at a premium of 10%. 8% Debentures Account is credited by:

a) ₹10,00,000

b) ₹12,10,000

c) ₹11,00,000

d) ₹11,90,000

Class 12 Accountancy MCQs Debentures

11. CAE Ltd. took over assets of ₹3,00,000 and liabilities of ₹10,000 of ACE Ltd. for ₹2,70,000 payable by issue of 9% Debentures of ₹100 each at 20% premium. Which of the following statements is correct:

a) Capital Reserve is to be debited with ₹20,000

b) Capital Reserve is to be credited with ₹20,000

c) Goodwill Account is to be debited with ₹20,000

d) Goodwill Account is to be credited with ₹20,000

12. PT Ltd. purchased business of KT Ltd. for ₹9,60,000 payable 25% by cheque and balance by issue of 8% Debentures of ₹100 each at a discount of 4% redeemable at a premium of 6%. 8% Debentures Account is credited with:

a) ₹9,60,000

b) ₹7,20,000

c) ₹10,00,000

d) ₹7,50,000

13. CAE Ltd. had allotted 10,000, 9% Debentures of ₹100 each to the applicants of 14000, 9% Debentures on pro rata basis. Application money payable was ₹20 per Debenture. Twinkle had applied for 420 debentures. The number of debentures allotted and the excess application money adjusted against allotment money due from Twinkle are:

a) 60 Debentures, ₹1,200

b) 300 Debentures, ₹2,400

c) 320 Debentures, ₹2,000

d) 340 Debentures, ₹1,000

14. On 1st April 2023, Mala ltd. had a balance of ₹8,00,000 in Securities Premium account. During the year company issued 20,000 Equity shares of ₹10 each as bonus shares and used the balance amount to write off Loss on issue of Debenture on account of issue of 2,00,000, 9% Debentures of ₹100 each at a discount of 10% redeemable @ 5% Premium. The amount to be charged to Statement of P&L for the year for Loss on issue of Debentures would be:

a) ₹30,00,000

b) ₹24,00,00o

c) ₹2,200,000

d) ₹20,00,000

15. Ankita Ltd. purchased building from Shagun Ltd. for ₹8,00,000. The consideration was paid by issue of 8% debentures of ₹100 each at a discount of 20%. The 8% Debentures account is credited with:

a) ₹10,00,000

b) ₹10,40,000

c) ₹9,60,000

d) ₹6,40,000

16. Which of the following statements is incorrect about debentures:

a) Debenture holders are the creditors of a company

b) Debentures can be issued to vendors at discount

c) Interest on debentures is an appropriation of profits

d) Interest is not paid on Debentures issued as Collateral Security

17. Assertion - Debentures saves income tax.

Reason - Interest on debenture is tax deductible expenditure.

a) Both Assertion and Reason are true, Reason is the correct explanation of Assertion

b) Assertion is correct but Reason is incorrect

c) Assertion is incorrect but Reason is correct

d) Both Assertion and Reason incorrect.

18. Assertion - Balance in debentures Interest Account is transferred to Statement of Profit & Loss at the end of the year

Reason - Interest on Debenture is charge against profit

a) Assertion is correct but Reason is incorrect

b) Assertion is incorrect but Reason is correct

c) Both Assertion and Reason are incorrect.

d) Both Assertion and Reason are correct, Reason is the correct explanation of Assertion

More questions will be added from time to time...

Class 12 Accountancy MCQs Debentures - Answers

1. c) will not be entitled to interest on such debentures.
2. b) ₹10,00,000
3. c) 10,000
4. c) loss on issue of debentures account
5. d) all of the above
6. c) Debentures cannot be converted into shares.
7. b) ₹40,000
8. a) ₹50,000
9. c) Interest is not paid on Debentures issued as Collateral Security
10. a) ₹10,00,000
11. b) Capital Reserve is to be credited with ₹20,000
12. d) ₹7,50,000
13. b) 300 Debentures, ₹2,400
14. b) ₹24,00,000
15. a) ₹10,00,000
16. c) Interest on debentures is an appropriation of profits
17. a) Both Assertion and Reason are true, Reason is the correct explanation of Assertion
18. d) Both Assertion and Reason are correct, Reason is the correct explanation of Assertion

Class 12 Accountancy MCQs Share Capital

MCQs on Company Accounts Class 12

Class 12 Accountancy MCQs Financial Statements Analysis

Learning Games and Activities in Accountancy – Class 12

The post Class 12 Accountancy MCQs Debentures appeared first on Commerceatease - Website for 11th & 12th Commerce.

1. Ownership

A shareholder is an owner of the company. Debentureholder is only a creditor. A share is a part of the owned capital. A debenture is a part of borrowed capital.

2. Return

The return on shares is known as dividend while the return on debentures is called interest. The rate of return on shares may vary from year to year depending upon the profits of the company but the rate of interest on debentures is pre-fixed. The payment of dividend is an appropriation out profits, whereas the payment of interest is a charge on profits and is to be paid even if there is no profit.

3. Repayment

Normally, the amount of shares is not returned during the life of the company, while the debentures are issued for a specified period, and the amount is returned after that period. However, according to sec. 68,69 and 70 of The Companies Act, 2013 regulates the companies to buy back its own shares from the market, particularly, when the price of its share in the market is lower than the book value.

4. Voting Rights

Shareholders enjoy voting rights whereas debenture holders do not normally enjoy any voting right.

5. Issue on Discount

Debentures can be issued at a discount. However, Section 53 of The Companies Act, 2013 prohibits the issue of share at a discount, except in case of Sweat Equity Shares.

6. Security

Shareholders do not have any charge whereas the debentureholders have a fixed or floating charge over the assets of the company.

7. Convertibility

Shares cannot be converted into debentures whereas debentures can be converted into shares if the terms of issue so provide, and in that case these are known as convertible debentures.

Debentures Issued as Collateral Security

Check Your Understanding

Nature of Accounts

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The finances raised through debentures are also known as long-term debt.

Meaning

Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains a contract for repayment of principal after a specified period or at intervals and for payment of interest at a fixed rate payable either half-yearly or yearly.

Meaning of Bond

Bond is also an instrument of acknowledgement of debt. Bonds can be issued by Government, semi-government and non-governmental organizations.

Types of Debentures

1. Secured and Unsecured Debentures

Secured debentures (mortgage debentures) are such which create a charge on the assets of the company.

Unsecured debentures do not carry any charge or security on the assets of the company.

2. Redeemable and Irredeemable Debentures

Redeemable debentures are those which can be redeemed during the lifetime of the company i. e. after a specific period of time.

Irredeemable debentures are those which can be redeemed only in the event of the winding up of the company.

3. Registered and Bearer Debentures

Registered debentures are those which are duly recorded in the register of debenture holders maintained by the company and are transferred through an instrument of transfer.

Bearer debentures are the debentures which are transferable by mere delivery.

4. Convertible and Non-Convertible Debentures

Convertible debentures are those debentures that can be converted into equity shares/preference shares/new debentures after the expiry of a specified period.

Non-convertible debentures are those which cannot be converted into equity shares/preference shares/new debentures.

5. First and Second Debentures

Debentures that are repaid before other debentures are repaid are known as first debentures.

The second debentures are those which are paid after the first debentures have been paid back.

6. Zero Coupon and Specific rate debentures

Zero coupon debentures do not carry any certain rate of interest but is hidden as these are issued at discount and redeemable at par.

Debentures with specific rate carry a specified rate of interest mentioned with them.

Difference Between Shares and Debentures

MCQs

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Debentures – Meaning and Types

Shares and Debentures

Difference Between Shares and Debentures

Issue of Debentures

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Journal entries for the issue of debentures are done in the same manner as that for the issue of shares.

1. If whole amount is received on application.

* As the case may be.

2.  If the amount is received in two installments.

Note: In normal cases of Debentures, the journal entries to be passed are same as in case of issue of shares, so these have been skipped.

Issue of Debentures for Consideration other than Cash

1. When company purchases assets

When company purchases assets and makes the payment to the vendor, in the form of fully paid Debentures of the company, this is said to be a case of Issue of Debentures for Consideration other than Cash. These Debentures can also be issued either at par, at premium or at discount, and the number of Debentures to be issued will depend upon the price at which the Debentures are issued and the amount payable to the vendor.

No. of Debs. to be issued to the vendor = Amount Payable/ Issue Price per Debentures.

Issue Price per Debentures = Face Value + Premium (-Discount).

Journal Entries to be passed in this case can be shown as:

2. If the whole business is being taken over

If the whole business is being taken over and the amount of debentures issued is more than the amount of the net assets taken over, the excess will be treated as value of goodwill and will be debited while passing the journal entry for the purchase of business and credited to Capital Reserve in case of the value of debentures issued being less than the value of the net assets taken over.

Journal Entries in case of Debentures issued to the vendor for purchase of business can be shown as:

Debentures – Meaning and Types

Terms of Issue of Debentures

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Meaning

It means the issue of Debentures by a company as an additional security for borrowing a loan from bank or any other financial institution so that these debentures can meet the purpose of security in case the amount realized out of principal (first/main) security is insufficient to pay for the loan, in case of default by the company in repayment of loan. Then, these debentures can be presented for redemption or sold in the open market.

Accounting treatment

There are two methods of treatment of Issue of Debentures as a Collateral Security

1. When journal entry is passed.

2. When journal entry is not passed.

1. When journal entry is passed.

Following journal entry is made on the issue of debentures as a collateral security; Debentures Suspense Account is debited because no cash is received for such issue.

Debenture Suspense Account........................ Dr.₹ 15,00,000

To Debentures Account  ₹ 15,00,000

(Being the issue of Debentures of ₹.... each issued as collateral security)

It is shown in the Notes to Accounts for Loan secured by the debentures as follows:

Long- term Borrowings

   Term Loan from State Bank of India  ₹ 10,00,000

Debentures

   15,000, 15% Debentures of ₹ 100 each           ₹ 15, 00,000

                Less: Debenture Suspense                    ₹ 15,00,000

                                     Total                                           nil

2. When journal entry is not passed.

In this case no Journal entry is to be made in the books of accounts of the company. It is shown in the Notes to Accounts for Loan secured by the debentures by way of a note as follows:

Long – term Borrowings        ₹ 10,00,000

   Term Loan from State Bank of India

(The above loan is collaterally secured by issue of 15,000, 12% Debentures of ₹ 100 each)

The journal entries for Debentures issued for consideration other than cash are similar to those in case of Shares issued in the same case.

Shares Issued to Vendor and Buy-Back of Shares

Class 12 Accountancy MCQs Debentures

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Company mentions the terms of redemption of Debentures, at the time issue. Redemption of debentures (Discharge of liability on account of debentures, by repayment of principal amount to the debenture holders) can be done at par or at premium.

Terms of Issue and Redemption of Debentures

Debentures can be redeemed either at par or at a premium. So, depending upon the terms and conditions of issue and redemption of debentures, the following six situations arise:

1. Issued at par and redeemable at par.

2. Issued at discount and redeemable at par.

3. Issued at a premium and redeemable at par.

4. Issued at par and redeemable at a premium.

5. Issued at a discount and redeemable at a premium.

6. Issued at a premium and redeemable at a premium.

The journal entries to be recorded for the above six cases of issue of Debentures are as follows.

1. Issued at par and redeemable at par.

2. Issued at discount and redeemable at par.

3. Issued at a premium and redeemable at par.

4. Issued at par and redeemable at a premium.

5. Issued at a discount and redeemable at a premium.

6. Issued at a premium and redeemable at a premium.

Debentures Issued as Collateral Security

Class 12 Accountancy MCQs Debentures

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