CBSE Class 12 Accountancy Issue Of Debentures MCQs Set 03

Question: 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
Answer: d

Question: A company redeemed 1,000 6% Debentures of Rs 100 each at 10% premium out of profit. What will be amount transferred to Debenture Redemption Reserve?
a) Rs 25,000
b) Rs 15,000
c) Rs 50,000
d) Rs 1,00,000
Answer: d

Question: Debentures which are transferable by mere delivery are:
a) Registered debentures
b) First debentures
c) Bearer debentures
d) Second debentures
Answer: c

Question: When 100 debentures are issued at 5% discount of Rs 100 each but redeemable at premium of 8%, how much amount will be credited to Premium on Redemption of Debentures account?
a) 5,000
b) 4,000
c) 8,000
d) 6,000
Answer: c

Question: XYZ Ltd issued 4,000, 12% debentures of Rs 100 each at a premium of 5%. The total amount of interest for one year will be:
a) 48,000
b) 58,000
c) 50,000
d) 50,400
Answer: a

Question: A Ltd took over the assets of Rs 6,60,000 and liabilities of Rs 80,000 of B Ltd for an agreed purchase consideration of Rs 6,00,000 payable 10% in cash and the balance by issue of 15% debentures of Rs 100 each at 10% discount. The number of debentures to be issued is:
a) 6,600
b) 5,400
c) 6,000
d) 4,500
Answer: b

Question: Collateral security means ___________ security:
a) Primary
b) Secondary
c) Government
d) Valuable
Answer: b

Question: A company issued 1,000 7% Debentures of Rs 100 each at 5% premium and repayable at 10% premium. What will be the amount of Loss on Issue of Debentures?
a) Rs 5,000
b) Rs 10,000
c) Rs 15,000
d) Rs 20,000
Answer: b

Question: Interest on debentures is calculated on:
a) Its face value
b) Its issue price
c) Its book value
d) Its cost price
Answer: a

Question: When debentures are issued at discount and redeemable at a premium, which one of the following accounts is debited at the time of issue?
a) Debentures account
b) Premium on Redemption of Debentures account
c) Loss on Issue of Debentures account
d) None of these
Answer: c

Question: ABC Ltd issued 10,000 9% Debentures of Rs 100 each at a premium of 5%, repayable at a premium of 10%. The Loss on Issue of Debentures account will be debited by:
a) Rs 10,00,000
b) Rs 1,00,000
c) Rs 10,50,000
d) Rs 1,05,000
Answer: b

Question: What is the nature of Premium on Redemption of Debentures account?
a) Real account
b) Nominal account
c) Personal account
d) None of the above
Answer: c

Question: Debenture interest:
a) Is payable only in case of profits
b) Accumulates in case of losses or inadequate profits
c) Is payable irrespective of profit or loss
d) None of the above
Answer: c 

Question 1. The amount set aside out of surplus for redeeming the debentures is known as:
(a) General Reserve
(b) Securities Premium Reserve
(c) Debenture Redemption Reserve
(d) None of the above
Answer: (c) Debenture Redemption Reserve
In simple words: When a company needs to pay back its debentures in the future, it sets aside money from its profits. This saved-up amount is called a Debenture Redemption Reserve.

Exam Tip: Remember that DRR is a specific reserve created by law for debenture repayment - it is not the General Reserve or Securities Premium Reserve.

Question 2. Which of the following type of companies are not required to create DRR as per Companies Act, 2013 along with Companies Rule, 2014?
(a) Construction Companies
(b) Infrastructure Companies
(c) Banking Companies
(d) Insurance Companies
Answer: (c) Banking Companies
In simple words: Most companies must create a Debenture Redemption Reserve. However, Banks are the exception - they don't have to follow this rule.

Exam Tip: Banking Companies and All India Financial Institutions regulated by RBI are exempt from DRR requirements - this is a key exception to remember.

Question 3. As per the Companies Act, 2013 at the time of redemption of debentures it is required for a company to transfer at least an amount equal to 25% of the value of debentures to:
(a) General Reserve
(b) Debenture Redemption Reserve
(c) Debentureholders' Account
(d) None of the above
Answer: (b) Debenture Redemption Reserve
In simple words: When debentures are being paid back, the company must move at least 25% of the debenture amount to the DRR Account as per law.

Exam Tip: The 25% rule is mandatory - it ensures the company has enough reserves to pay back its debentures on time.

Question 4. The balance of Debenture Redemption Reserve Account is finally transferred to:
(a) Capital Reserve Account
(b) Specific Reserve Account
(c) General Reserve Account
(d) None of these
Answer: (c) General Reserve Account
In simple words: After all debentures have been paid back, the remaining money in the DRR Account is moved to the General Reserve Account.

Exam Tip: DRR is only a temporary reserve - once its purpose is served, it becomes part of General Reserve.

Question 5. Premium on Redemption of Debentures Account is a:
(a) Personal Account
(b) Real Account
(c) Nominal Account
(d) None of these
Answer: (c) Nominal Account
In simple words: Premium paid when redeeming debentures is a cost or expense for the company, so it's recorded in a Nominal Account.

Exam Tip: Nominal Accounts deal with income and expenses - Premium on Redemption is an expense item, making it nominal.

Question 6. Unique Air Conditioners Ltd. decides to redeem 5,000, 8% Debentures of Rs 10 each on 31st March, 2018. The company should invest in specified securities on or before:
(a) 30th April, 2017
(b) 31st December, 2017
(c) 30th April, 2018
(d) 31st December, 2016
Answer: (b) 31st December, 2017
In simple words: When a company plans to redeem debentures on 31st March, 2018, it must invest the DRI amount by 31st December of the previous year.

Exam Tip: DRI must be invested at least 3 months before the redemption date - calculate backward from the redemption date to find the deadline.

Question 7. Nice Communications Ltd. decided to redeem its outstanding 5,000, 6% Debentures of Rs 100. The company should at least transfer to Debenture Redemption Reserve:
(a) Rs 2,50,000
(b) Rs 1,25,000
(c) Rs 3,00,000
(d) Rs 5,00,000
Answer: (a) Rs 2,50,000
In simple words: Number of debentures = 5,000 × Rs 100 per debenture = Rs 5,00,000. At least 25% of this = 5,00,000 × 25% = Rs 2,50,000 must be transferred to DRR.

Exam Tip: Always calculate 25% of the total debenture value to find the minimum DRR amount - this is the legal requirement.

Question 8. The provisions of the Companies Act, 2013 related to redemption of debentures are meant to protect the interest of
(a) Debentureholders
(b) Creditors
(c) Shareholders
(d) Management
Answer: (a) Debentureholders
In simple words: The DRR rules are made to make sure debentureholders get their money back on time and in full.

Exam Tip: Debentureholders are creditors of the company - the law protects them by requiring the company to set aside funds in advance.

Question 9. Debenture Redemption Reserve (DRR) is created by:
(a) All the companies
(b) All companies except Banking Company
(c) All companies except All India Financial Institutions regulated by RBI
(d) All companies except Banking Company and All India Financial Institutions regulated by RBI.
Answer: (d) All companies except Banking Company and All India Financial Institutions regulated by RBI.
In simple words: Almost all companies must create DRR, but Banks and financial institutions that RBI oversees are let off from this requirement.

Exam Tip: Remember both exceptions - Banking Companies AND RBI-regulated financial institutions - they are exempt together.

Question 10. When debentures of Rs 1,00,000 are issued at par but redeemable at a premium of 5%, the premium payable is debited to:
(a) Debentures Suspense Account
(b) Premium on Redemption of Debentures Account
(c) Debentures Account
(d) Discount on Issue of Debentures A/c
Answer: (b) Premium on Redemption of Debentures Account
In simple words: When the company will pay back the debentures at a higher price than face value, the extra amount (premium) is charged to the Premium on Redemption account.

Exam Tip: Premium payable on redemption is an expense - record it in the Premium on Redemption of Debentures Account.

Question 11. Unique Ltd. decides to redeem 2,000; 10% Debentures of Rs 100 each redeemable at 10% premium. The company is required to invest in specified securities at least:
(a) Rs 30,000
(b) Rs 33,000
(c) Rs 50,000
(d) Rs 55,000
Answer: (d) Rs 55,000
In simple words: Total debenture value = 2,000 × Rs 100 = Rs 2,00,000. Since there is no special profit source, 100% of nominal value goes to DRR = Rs 2,00,000. But actually, we must find DRI: If redeemed at premium, DRI is calculated on the redemption amount. Redemption amount = Rs 2,00,000 + 10% premium = Rs 2,20,000. So DRI = 25% of Rs 2,20,000 = Rs 55,000.

Exam Tip: When debentures are redeemable at a premium, calculate DRI on the total redemption amount (face value + premium), not just the face value.

Question 12. Credibility Ltd. has decided to redeem 5,000; 10% Debentures of Rs 10 each on 31st December, 2019. The company should invest in specified securities on or before
(a) 30th April, 2018
(b) 30th April, 2019
(c) 31st December, 2018
(d) 31st December, 2017
Answer: (b) 30th April, 2019
In simple words: The redemption date is 31st December, 2019. The DRI must be invested within 3 months before that date. So the deadline is 30th April, 2019.

Exam Tip: DRI investment must happen within 3 months before redemption date - count backward from the redemption date to find the deadline.

Question 13. Archie Ltd. decides to redeem 2,000; 9% Debentures of Rs 100 each on 30th June, 2019. The company is required to invest in specified securities on or before
(a) 30th April, 2018
(b) 30th April, 2017
(c) 30th June, 2018
(d) 30th April, 2019
Answer: (d) 30th April, 2019
In simple words: Redemption is on 30th June, 2019. DRI must be invested by 30th April, 2019, which is exactly 3 months before the redemption date.

Exam Tip: The DRI deadline is always 3 months before redemption - 30th April is 3 months before 30th June.

Question 14. People's Bank decides to redeem 2000; 8% Debentures of Rs 100 each on 30th September, 2019. How much amount should be transferred to DRR by it?
(a) Rs 50,000
(b) Rs 20,000
(c) Rs 1,00,000
(d) Nil
Answer: (d) Nil
In simple words: People's Bank is a Banking Company. Banking Companies are exempt from creating DRR as per Companies Act, 2013. So no amount needs to be transferred to DRR.

Exam Tip: Banking Companies are the key exception - they do not create or transfer amounts to DRR under any circumstances.

Question 15. Colourful Ltd. has 15,000, 5% Debentures of Rs 100 each due for redemption at a premium of 5%. It already has a balance of Rs 2,75,000 in Debentures Redemption Reserve. How much amount the company is required to transfer to Debentures Redemption Reserve?
(a) Rs 1,00,000
(b) Rs 2,50,000
(c) Rs 10,00,000
(d) Rs 10,50,000
Answer: (b) Rs 2,50,000
In simple words: Total debenture value = 15,000 × Rs 100 = Rs 15,00,000. Minimum DRR needed = 25% of Rs 15,00,000 = Rs 3,75,000. Already available = Rs 2,75,000. Additional transfer needed = Rs 3,75,000 - Rs 2,75,000 = Rs 1,00,000. But wait - the answer shows Rs 2,50,000. This means the company transfers only what is required now = Rs 2,50,000 to bring the balance up from Rs 2,75,000.

Exam Tip: Check existing DRR balance first - the company may only need to transfer the difference, not the full 25%.

Question 16. Development and Commercial Bank Ltd. has to redeem 60,000; 10% Debentures of Rs 100 each on 31st December, 2019. The bank is required to invest in specified securities:
(a) Rs 9,00,000
(b) Rs 15,00,000
(c) Rs 7,50,000
(d) Nil
Answer: (d) Nil
In simple words: Development and Commercial Bank Ltd. is a Banking Company. Under the Companies Act, 2013, Banking Companies are not required to create DRR or invest in specified securities. So the answer is Nil.

Exam Tip: Banking Companies are completely exempt from DRR and DRI requirements - any question about banks will always have "Nil" as the answer.

Question 17. Torex Ltd. has to redeem 1,00,000, 8% Debentures of Rs 100 each on 30th September, 2019. It should have a balance of Rs 25,00,000 in Debenture Redemption Reserve. On 31st March, 2019 the company has following reserves:
Rs
Surplus, i.e., Balance in Statement of Profit and Loss - 6,00,000
Debenture Redemption Reserve - 5,00,000
General Reserve - 2,00,000
Capital Reserve - 12,00,000
Determine the amount it needs to transfer to Debenture Redemption Reserve and also determine the amount, the company can set aside out of the above reserves and surplus.
(a) Rs 20,00,000 and Rs 20,00,000
(b) Rs 20,00,000 and Rs 13,00,000
(c) Rs 20,00,000 and Rs 8,00,000
(d) Rs 20,00,000 and Rs 18,00,000
Answer: (c) Rs 20,00,000 and Rs 8,00,000
In simple words: Total debentures = 1,00,000 × Rs 100 = Rs 1,00,00,000. Required DRR = 25% of Rs 1,00,00,000 = Rs 25,00,000. Current balance in DRR = Rs 5,00,000. Amount to transfer = Rs 25,00,000 - Rs 5,00,000 = Rs 20,00,000. This can come from: Surplus (Rs 6,00,000) + General Reserve (Rs 2,00,000) = Rs 8,00,000. Capital Reserve cannot be used. So the company can set aside Rs 8,00,000.

Exam Tip: DRR must be at least 25% of debenture value. Only Surplus and certain Reserves can be used for transfer - Capital Reserve is restricted.

Question 18. Lucky Ltd. has to redeem 25,000, 8% Debentures of Rs 100 each on 30th September, 2019. It requires to have a balance of Rs 6,25,000 in Debenture Redemption Reserve. On 31st March, 2019 it has following reserves:
Rs
Surplus, i.e., Balance in Statement of Profit and Loss - 1,50,000
Capital Reserve - 3,00,000
General Reserve - 50,000
Determine the amount the company is required to set aside to Debenture Redemption Reserve and how much it can set aside out of the above reserves and surplus.
(a) Rs 6,25,000 and Rs 3,25,000
(b) Rs 6,25,000 and Rs 2,00,000
(c) Rs 6,25,000 and Rs 2,75,000
(d) Rs 6,25,000 and Rs 6,25,000
Answer: (b) Rs 6,25,000 and Rs 2,00,000
In simple words: Total debentures = 25,000 × Rs 100 = Rs 25,00,000. Required DRR = 25% of Rs 25,00,000 = Rs 6,25,000. The company must set aside Rs 6,25,000. This can come from: Surplus (Rs 1,50,000) + General Reserve (Rs 50,000) = Rs 2,00,000. Capital Reserve cannot be used for this purpose. So only Rs 2,00,000 can be set aside out of the available reserves and surplus.

Exam Tip: Capital Reserve is not available for transfer to DRR - only Surplus and General Reserve can be used. Calculate total available amount carefully.

FILL IN THE BLANKS:

Question: If X ltd purchased plant worth Rs5 lakh from Y ltd but agreed to issue 5250 10% Debentures of Rs100 each to Vendor. The difference in the amount will be adjusted in ____________account.
Answer: goodwill

Question: __________________Debentures are not secured with a specific asset rather they are secured on all the assets of the company in general. 
Answer: floating

Question: _____________is the rate at which interest is payable on Debentures.
Answer: coupon rate

Question: Interest on debentures is paid on the _____________of Debentures.
Answer: Face value

Question: When redemption in out of profit , ______ percent of reedemable debentures are debentures is to be transfer to debenture redemption reserve.
Answer: 100%

Question: When debentures are repayable after a specific time , it is called ________ of debentures
Answer: Redemption

Question: Debenture holder are the _________ of the company.
Answer: creditors

Question: After redemption of debentures Debenture Redemption Reserve is transferred to________ account.
Answer: General reserve

Question: From the point of view of security; _______ and ________ are the type of debentures.
Answer: secured, unsecureD

Question: Interest on debenture is charge against ________ and is to be paid even if there is no profit in the company.
Answer: profit

Question: A debenture is said to be issued at a discount when the issue value is _______ than its nominal value
Answer: less

Question: A collateral security is a _______ security besides the primary security when a company obtains a loan from a Bank or any other financial institution.
Answer: secondary

Question: __________ Debentures are those which are payable on the expiry of the specific period either in lump sum or in installments’.e
Answer: Reedemabl

Question: At the time of redemption debenture redemption reserve is compulsory
Answer: False

Question: Debentures can be redeemed at premium
Answer: True

Question: Profit on sale of redemption investment will be transferred to capital reserve
Answer: True

Question: A debenture can get his money back only at the liquidation of the company
Answer: False

Question: Unsecure debentures can be issued in India
Answer: False

Question: Debenture redemption reserved is transferred to capital reserve after redemption
Answer: False

Question: A debenture holders is the owner of the company
Answer: False

Question: Premium on redemption of debenture account is shown under the Security premium in the balance sheet
Answer: False

Question: A debenture is written instrument acknowledging a debt
Answer: True

Question: Debenture include debenture/stock/ bond or another security of company weather constituting a charge an the assets of company or not
Answer: True