CBSE Class 12 Accountancy Company Account Issue of Debentures VBQs

VERY SHORT ANSWER - QUESTIONS

Question. Debenture holders are
A) Debtors of the Company
B) Creditors of the Company
C) External users
D) Owners of the Company
Answer. B

Question. Debenture Application A/c is in the form of
A) Current Account
B) Nominal Account
C) Personal Account
D) Real Account
Answer. B

Question. A company issued Rs.50,000 10% debentures at a discount of 5% redeemable after 5 years at a pre-mium of 5%.Loss on issue of debentures will be Rs.…………………….
Answer. 5,000

Question. Dharm Ltd issues 2,000 ,10% debentures of Rs.100 each at a premium of 20%.The total amount of interest on debentures for one year will beRs.………………………….
Answer. 20,000

Question. Debenture holders are the creditor of a company True /Falase.
Answer. True

Question. Name the type of debentures whose ownership passes on mere delivery of debentures certificates.
Answer. Bearer debentures

Question. Company can issue debenture to its vendor True/False.
Answer. True

Question. Debentures issued as collateral security will be debited to:
a) Bank Account
b) Debentures Suspense Account
c) Debentures Account
d) Bank Loan Account
Answer. B

Question. When debentures of ₹1,00,000 are issued as Collateral Security against a loan of ₹1,50,000, the entry for issue of debentures will be :
a) Credit Debentures ₹1,50,000 and debit bank A/c ₹1,50,000
b) Debit Debenture Suspence A/c ₹1,00,000 and Credit Bank A/c ₹1,00,000
c) Debit Debenture Suspence A/c ₹1,00,000 and Credit Debentures A/c ₹1,00,000.
d) Debit Cash A/c ₹1,50,000 and Credit Bank A/c ₹1,50,000.
Answer. C

Question. Debentures are shown in the Balance Sheet of a company under the head of
a) Non-current Liabilities
b) Current Liabilities
c) Share Capital
d) None of these
Answer. A

Question. When debentures are to be redeemed at premium an extra entry has to be made at the time of issue of debentures, which a/c should be credited in this entry?
a) Loss on issue of debentures a/c
b) Debenture redemption premium a/c
c) Bank a/c
d) Debenture holder’s a/c
Answer. B

Question. Debentures represent the :
a) Long term Borrowings of a company
b) The Investment of Equity-Shareholders
c) Directors’ shares in a company
d) Short-term Borrowings of a Company
Answer. A

Question. Premium on Redemption of Debentures Account is:
a) Personal Account
b) Real Account
c) Nominal Account
d) All of the above
Answer. A

Question. X Ltd. acquired assets of ₹20 lakhs and took over creditors of ₹20 thousand from Y Ltd. X Ltd. issued 8% debentures of ₹200 each at a discount of 10% as purchase consideration. Number of debentures issued will be:
a) 11,000
b) 9,000
c) 10,000
d) 10,100
Answer. A

SHORT ANSWER TYPE QUESTIONS

Question. Give journal entries for the issue of debentures in the following conditions.
A) Issued 2,000, 12% debentures of Rs. 100 each at a discount of 2%, redeemable atpar.
B) Issued 2,000, 12% debentures of Rs. 100 each at a premium of 5%, redeemable at a premium of10%.
Answer. A) Bank a/c Dr. 1,96,000
To 12% debentures application & allotment a/c 196,000
(Application money received)
B) 12% debentures application &allotment a/c Dr. 1,96,000
Discount on issue of debentures a/ c Dr. 4,000
To 12% debentures a/c   2,00,000
(Transfer of application money to debentures a/c, issued at a discount of 2%)
b) Bank a/c Dr. 2,10,000
To 12% debentures application & allotment a/c 2,10,000
(application money received)
12% debentures application &allotment a/c Dr. 2,10,000
Loss on issue of debentures a/c Dr.
To 12% debentures a/c 20,000
To Securities premium reserve a/c 10,000
To premium on redemption a/c 20,000
To 12% debentures a/c 2,00,000
(transfer of application money to debentures a/c, issued at a premium of 5% and redeema-ble at a premium of 10%)

Question. National Packaging Company purchased assets of the value of Rs 1,90,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of Rs 100 each at a discount of 5%. Record necessary journal entries.
Answer. Sundry Assets A/c Dr. 1,90,000
To Vendors 1,90,000
(Assets purchased from vendors)
Vendors Dr. 1,90,000
Discount on Issue of Debenture A/c Dr. 10,000
To 10% Debentures A/c 2,00,000
(Allotment of 2,000 debentures of Rs 100 each at a discount of 5% as purchase considera-tion)

Question. Aashirward Company Limited purchased assets of the book value of Rs 2,00,000
from another company and agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of Rs 100 each. Record the necessary journal entries.
Answer. Sundry Assets A/c Dr. 2,00,000
To Vendors 2,00,000
(Assets purchased from vendors)
Vendors Dr. 2,00,000
To 10% Debentures A/c 2,00,000
(allotment of debentures to vendors as
purchase consideration)

Question. TV Components Ltd., issued 10,000, 12% debentures of Rs 100 each at a discount of 5% payable as follows:
On application Rs 40
On allotment Rs 55
Show the journal entries including those for cash, assuming that all the instalments were duly collected.
Answer. Books of TV Components Ltd.
Bank A/c Dr. 4,00,000
To 12% Debenture Application A/c 4,00,000
(Receipt of application money @ Rs 30 per debenture)
12% Debenture Application A/c Dr. 4,00,000
To 12% Debenture A/c 4,00,000
(Transfer of application money to debenture account)
12% Debenture Allotment A/c Dr. 5,50,000
Discount on Issue of Debentures A/c 50,000
To 12% Debenture A/c 6,00,000
(Allotment money due on debentures)
Bank A/c Dr. 5,50,000
To 12% Debenture Allotment A/c 5,50,

Question. XYZ Industries Ltd., issued 2,000, 10% debentures of Rs 100 each, at a premium of Rs 10 per debenture payable as follows:
On application Rs 50
On allotment Rs 60
The debentures were fully subscribed and all money was duly received.
Record the journal entries in the books of a company
Answer. Books of XYZ Industries Limited
Bank A/c Dr. 1,00,000
To 10% Debenture Application A/c 1,00,000
(Application money Rs 50 per debentures received)
10% Debenture Application A/c Dr. 1,00,000
To 10% Debentures A/c 1,00,000
(Transfer of application money )
10% Debenture Allotment A/c Dr. 1,20,000
To 10% Debentures A/c 1,00,000
To Securities Premium A/c 20,000
(Allotment money due on debentures including the premium)
Bank A/c Dr. 1,20,000
To 10% Debenture Allotment A/c 1,20,000
(Allotment money received)

Question. Rai Company purchased assets of the book value of Rs 2,20,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000, 10% debentures of Rs 100 each at a premium of 10%. Record necessary journal entries.
Answer. Books of Rai Company Limited
Sundry Assets A/c Dr. 2,20,000
To Vendors 2,20,000
(Assets purchased from vendors)
Vendors Dr. 2,20,000
To 10% Debentures A/c 2,00,000
To Securities Premium A/c 20,000
(Allotment of 2,000 debentures of Rs 100 each at a premium of 10% as purchase consideration)

Question. A Limited took over the assets of Rs 3,00,000 and liabilities of Rs 10,000 from B & Co. Ltd. for an agreed purchase consideration of Rs 2,70,000 to be satisfied by issue of 15% debentures of Rs 100 at 20% premium. Show the journal entries in the journal of A Limited.
Answer. Books of A Limited
Sundry Assets A/c Dr. 3,00,000
To Sundry Liabilities A/c 10,000
To B & Co. Ltd. 2,70,000
To Capital Reserve 20,000
(Purchased assets and took over liabilities from B Ltd.)
B & Co. Ltd. Dr. 2,70,000
To 15% Debentures A/c 2,25,000
To Securities Premium A/c 45,000
(Issue of 2,250 debentures of Rs 100 each at a
premium of 20%)
 

Question. Board of Directors of Pearl Global Industries Ltd wants to start a new unit at a remote area Assam.
The new unit can be started in the form of labour intensive with a capital of Rs 5 crore or in the form of automatic plant with a capital of Rs.30 crore. Directors decided to start this unit in the form of labour intensive for generation of employment opportunities in remote areas. Therefore thecompany purchased land for Rs.2,00,00,000 and machinery for Rs.3,00,00,000. In consideration of these assets company issues 13% Debentures at par.
Identify the values involves in the decision of directors of pearl Global Ltd. and Journalize the transactions.
Answer. Balanced Regional Development
Generation of employment
Upliftment of weaker section

Question. According to the SEBI guidelines, Debentures can be secured by a charge on the assets of the company . A ‘Debenture Trust Deed’ is entered into between the company and the debenture holders.
Identify the values involved in this decision of SEBI.
Answer. Safety of investment
Legal compliance
Protection of interest of debenture holders

Question. A Ltd. issued Rs. 10 lacs 9% debentures of Rs.100 each on 1st April, 2008 redeemable in five equal instalments through draw of lots beginning from the year ending 31st march 2011. Assume that the company has transferred sufficient amount to debenture redemption reserve.
State the values symbolized by redeeming the debentures through draw of lots.
Answer. Judicious method of settlement of liabilities
Foresightedness

Question. Creation of Debenture Redemption Reserve by company indicates which value?
Answer.  Foresightedness
Judicious method
Adherence to SEBI guidelines and Companies Act

Question. INFRA Developers Ltd., ( an infrastructure company) issued 5, 00,000 8% Debentures of Rs. 100 each on April 1, 2008 redeemable on April 1, 2012. How much amount of Debenture Redemption Reserve is required before the redemption of debentures?
Which value SEBI wants to promote by having special provision for Infrastructure Company?
Answer.  National Development
Aid to capital formation

Question. During the time of recession, Shiva Ltd., got a good deal with a company located in Sweden. The contract will result in more amounts of profit and foreign exchange. The company already enjoyed a good reputation in the industry. It decided to increase its capacity utilization and hence was in need of funds.
On 1st April 2012, after careful analysis, the company offered 10,000,10% convertible debentures of the face value of Rs.100 each at a discount of 10%. These debentures are convertible into equity shares of Rs.100 each at a premium of 10%. At present, the return on investment of Shiva Ltd., is 25%. At the time of issue of debentures the prevailing interest rate was 8%. The issue was successfully completed.
Identify the values which were considered by the board of directors while issuing the debenture.
Answer.  Socially Responsible
Opportunity given to the lenders to become shareholders

Question. Parvathy Ltd., engaged in the production of Ayurvedic products. The capital structure of the company is as follows.
1,00,000 equity shares of Rs.100 each Rs.1,00,00,000
50,000 nonconvertible 8% Debentures of Rs.100 each Rs.50,00,000
In order to expand the business activities, the company issued 25,000 8% Debentures of Rs.100 each at par on 1st January 2010 which are convertible into equity shares of Rs.100 each at a discount of 10%. The return on investment of the company is 10%. Identify the values ignored at the time of issue of debentures.
Answer.  Values Ignored:
Financial Risk
Dilution of control
Wealth maximization

Question. The following balances appeared in a company balance sheet on 31.03.2012
Debenture Redemption Reserve A/C Rs.2,50,000
10,000 9%Debentures of Rs.50 each Rs.5,00,000
On the above date the debentures were redeemed. For the purpose of redemption the company issued 5,000 equity shares of Rs.100 each at par to the public.
Identify the values ignored by the board of directors.
Answer.  Values Ignored:
Weak financial foresight
Reduction in market value of share
Deprive the rights of existing shareholders

Question. A Ltd., wanted to expand its business. The current rate of ROI is 25%. The prevailing rate of interest is 10%. The projected ROI after the expansion of the business is 30%. A Ltd., enjoys a good reputation in the industry. After careful analysis, the Board of Directors decided to raise additional funds through the issue of Debentures. Accordingly on 1.1.2012 the company issues 10,000 10% Debentures of Rs.100 each redeemable at a premium of 10% after 4 years.
Identify the values considered by the Board of Directors from the point of view of shareholders.
Answer.  More employment opportunities
Benefit of Trading on Equity
Financial control
Improves the standard of living of the society

Question. Jay Ltd., has the following balances in its balance sheet.
Securities premium Rs.44,00,000
Debenture Redemption reserve Rs.2,40,00,000
12% Debentures Rs.2,40,00,000
Under writing commission Rs.20,00,000
The company decided to redeem its 12% Debentures at a premium of 10%. Jay Ltd., utilized the securities premium for the purpose of redeeming the debentures and writing off the under writing commission.
Identify the values involved in this problem.
Answer.  Financial Strength
Wealth maximization
Adherence to Companies Act