Question by CA (Dr.) G.S.GREWAL, Series – 26

  1. Collateral Security is the main or principal security mortgaged for loan taken by the company.
  1. Securities Premium Reserve Account is shown on _____ side of the Balance Sheet under _____.
  1. Debentures issued as collateral security will be debited to:-

a) Debenture Application and Allotment Account

b) Debenture Suspense Account

c) Bank Account

d) Bank Loan Account

Answer Series – 26

  1. False

Reason: It is secondary or additional security besides the main security because it is a security given for the loan where the company is not in a position to give security of physical nature.

  1. Liabilities, Reserves and Surplus
  1. (b)

Reason: Debenture Suspense Account will be debited at the time of issue of Debentures as Collateral Security.

Question Series – 27

  1. Redemption out of profit means the company shall set aside amount equal to 100% of the nominal (face) value of debentures to DRR.
  1. After redemption of debentures, proportionate amount from Debenture Redemption Reserve Account may be transferred to _______ Account.
  1. What is the nature of ‘Premium on Redemption of Debentures Account’?

a) Real

b) Nominal

c) Personal

d) Expense

Answer Series – 27

  1. True

Reason: Out of profits means source of redemption is surplus or profit of the company distributable among shareholders as dividend in the form of bonus issue. If DRR is created of amount lower than 100%, it is redemption partly out of profits.

  1. General Reserve
  1. (c)

Reason: ‘Premium on Redemption of Debentures Account’ is a personal account since it is payable to Debenture holders. It can be termed as Representative Personal Accounts because of showing premium payable to each Debenture holder, it is shown as a single amount.

Question – Series 84

  1. Collateral Security is the main or principal security mortgaged for loan taken by the company.
  2. Interest on Debenture is a ______ against profit.
  3. 10% Debenture. Here 10% is _______.

(a)     Coupon Rate

(b)     Dividend Rate

(c)     Floating Rate

Answer – Series 84

  1. False

Reason: It is secondary or supplementary security besides the main security.

  1. Charge
  2. (a)

Coupon Rate means fixed rate of interest on which debentures are issued.

Question – Series 85

  1. Interest on Debentures is paid only when a Company earns profit.
  2. Debentures can be converted into _______.
  3. Out of the following, to which category of Account, ‘Debentures’ belong?

(a) Asset

(b) Capital

(c) Liability

(d) Expense

Answer – Series 85

  1. False

Reason: Interest on debentures is paid whether the company earns profit or loss since it is charge against profits.

  1. share
  2. (c)

Reason: Debentures include debenture stock, bonds and any other instrument of the company evidencing a debt whether constituting a charge on the asset of the company or not Hence it belongs to liability.

Question – Series 93

  1. Debentures are part of Shareholder’s Funds.
  2. Debenture holders do not have right to _______.
  3. Debentures are issued in terms of Issue of Debentures and is an agreement between the Company and the _______ for repayment of Principal amount and interest on the specified date.

(a)     Shareholder

(b)     Preference Shareholder

(c)     Debenture holder

(d)     Equity Shareholder

Answer – Series 93

  1. False

Reason: Debenture is a debt of the Company and thus, is a loan liability and not Shareholders’ Funds.

  1. Vote
  2. (c)

Reason: Issue of Debentures means company agreed to pay principal amount and certain interest at the specified period. The debenture holder had applied for the debentures in terms of its issue. Hence, it is an agreement.

Question – Series 94

  1. Secured Debentures are those debentures which are secured against fixed charge..
  2. Premium on issue of debentures is transferred to _______.
  3. Interest pad to debenture holders is a

(a)     Fixed Expense

(b)     Fluctuating Liability

(c)     Assets of a Company

(d)     Revenue of the Company

Answer – Series 94

  1. False

Reason: Secured Debentures are those debentures which are secured against fixed charge or floating charge.

  1. Security Premium Reserve

3.(a)

Reason: Interest is paid by the company is an expense and is paid whether the company earns profit or incurs loss.

Question – Series 109

  1. Redemption of Debentures by a Banking Company can be redeem only out of Capital.
  2. Discount or Loss on issue of Debentures is a _________.
  3. C Ltd. is to redeem 10,000, 8% Debentures of ₹ 100 each at a premium of ₹ 10 out of profit. Amount that should be set aside to Debenture Redemption Reserve (DRR) is

(a)     ₹ 2,50,000

(b)     ₹ 10,00,000

(c)      ₹ 11,00,000

(d)     ₹ 7,50,000

Answer – Series 109

  1. True

 Reason: Because Banking companies are exempted from creating DRR. Therefore, they redeem their debentures out of capital.

  1. Capital Loss
  2. (b)

Reason: When debentures are redeemed out of profits only, DRR is created by transferring an amount that is equal to 100% of the nominal (Face) value of the outstanding debentures to DRR. Therefore 100% is (10,000 X 100) = ₹ 10,00,000.

Question – Series 110

  1. If a company set aside profit for Debenture Redemption Reserve, it means redemption is not only out of Capital.
  2. In case of redemption out of ________, debentures are redeemed setting aside 100% of nominal (face) value of debentures to DRR.
  3. A Ltd. redeem 15,000, 10% Debentures of ₹ 100 each at a premium of ₹ 10 out of profit. Amount that should be invested in Debenture Redemption Investment by the Company is

(a)     ₹ 2,25,000

(b)     ₹ 2,74,500

(c)      ₹ 4,72,500

(d)     ₹ 15,00,000

Answer – Series 110

  1. True

 Reason: Debentures when redeemed without transferring amount to DRR is redemption out of capital. Hence, if amount is transferred to DRR, it is not redemption only out of capital.

  1. Profit
  2. (a)

Reason: According to Rule 18 (7)(c) of the Companies Rules, 2014, the company shall invest an amount at least equal to 15% of the nominal (face) value of debentures that shall be redeemed by the company by 31st March of next year. Hence, it shall invest ₹ 2,25,000 (15% of ₹ 15,00,000) in DRI.