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MCQ on Issue and Redemption of Debentures

1. Which of the following statements is false?
(A) Debenture is a form of public borrowing
(B) It is customary to prefix debentures with the agreed rate of interest in case of fixed interest
(C) Debenture interest is a charge against profits
(D) The issue price and redemption value of debentures cannot differ

2. Non convertible debentures refer to
(A) Owner’s capital
(B) Loan capital
(C) Short term fund
(D) Deferred investment

3. Interest on debentures is calculated on:
(A) Its face value
(B) Its issue price
(C) Its market price
(D) Its redemption price

4. “Interest accrued & due on debentures” is shown
(A) Under debentures
(B) As other current liabilities
(C) As provisions
(D) As a reduction of bank balance

5. Which of the following is true with regard to 10% Debentures issued at a discount of 20%?
(A) The carrying amount of debentures gets reduced each year at a rate of 20%
(B) Issue price and the carrying amount of debentures are equal
(C) At the time of redemption, the debenture holder will be paid the issue price
(D) The face value and the carrying amount of debentures are equal

6. Which of the following is not a characteristic of Bearer Debentures?
(A) They are treated as negotiable instruments
(B) Their transfer requires a deed of transfer
(C) They are transferable by mere delivery
(D) The interest on it is paid to the holder irrespective of identity

7. Discount on issue of debentures is a:
(A) ‘Revenue loss to be charged in the year of issue
(B) Capital loss to be written off from capital reserve
(C) Capital loss to be written off over the tenure of the debentures
(D) Capital loss to be shown as goodwill

8. When debentures are issued as collateral security, the final entry for recording the collateral debentures in the books is:
(A) Credit Debentures A/c and debit Cash A/c
(B) Debit Debenture suspense A/c and credit Cash A/c
(C) Debit Debenture suspense A/c and credit Debentures A/c
(D) Debit cash A / c and credit the loan A/c for which security is given

9. When debentures are issued as collateral security against any loan then the holder of such debentures is entitled to:
(A) Interest only on the amount of loan
(B) Interest only on the face value of debentures
(C) Interest both on the amount of the loan and on the debentures
(D) None of the above

10. Premium on redemption of debentures account appearing in the balance sheet is
(A) A real account
(B) A nominal account income
(C) A personal account
(D) A nominal account expenditure

11. “Interest accrued & not due on debentures” is shown
(A) Under debentures
(B) As current liabilities
(C) As provisions
(D) As a reduction of bank balance

12. Tax deducted at source on interest on debenture is shown as
(A) Expense
(B) Asset
(C) Liability
(D) Income

13. Which of the following statements is false?
(A) At maturity, debenture holders get back their money as per the terms and conditions of redemption
(B) Debentures can be forfeited for non-payment of call money
(C) In the company’s balance sheet, debentures are shown under secured loans
(D) Interest on debentures is charged against profits

14. Debenture premium cannot be used
(A) Write off the premium on redemptions of shares or debenture
(B) Write off the discount on the issue of debentures
(C) Pay dividends
(D) Write off capital losses

15. Which of the following statements is false?
(A) A company can issue convertible debentures
(B) Debentures cannot be secured
(C) A company can issue redeemable debentures
(D) Debentures have no right to participate in profits over and above their fixed interest

16. Debentures can be redeemed out of-
(A) Profits
(B) Provisions
(C) Capital
(D) Any of the above

17. Debentures normally cannot be redeemed at
(A) Premium
(B) Discount
(C) Par
(D) All of the above

18. Sound business policy demands that discount on the issue of debenture should be written off
(A) As quickly as possible
(B) In 5 years
(C) In 10 years
(D) As agreed at the time of the issue

19. If debentures are issued at discount and redeemed at a premium
(A) Loss on Issue of Debentures A/c is debited
(B) Debentures A/c is credited
(C) Premium on Redemption of Debentures A/c is credited.
(D) All of the above are correct

20. Profit on cancellation of debentures is transferred to
(A) Capital reserve
(B) Capital redemption reserve
(C) Profit & loss account
(D) General reserve

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