Debentures

A Debenture is a type of investment issued by an organization or business to raise money for long-term growth and activities. In other words, it is marketable security. Being a form of debt capital it is accounted for as debt on the balance sheet of the issuing organization. It is a type of savings bond offering a fixed rate of interest over a long period and is usually issued by companies or the Government.

Here are a few MCQs on Debentures for your better understanding of the topic.

1. Debenture qualifies the owner towards

1. 1. Company’s voting rights.
   2. Firm’s profits share.
   3. Fixed-rate interest.
   4. Fixed dividend.

The answer is C.

2. Perpetual debentures are known as

1. 1. Unsecured debentures.
   2. Irredeemable debentures.
   3. Secured debentures.
   4. None of the above.

The answer is B.

3. You cannot use debenture premium to

1. 1. Write off the capital loss.
   2. Write off the premium on redemption of shares or debentures.
   3. Pay dividends.
   4. Write off discount on issue of shares.

The answer is C.

4. What is secured debenture known as?

1. 1. Naked debentures.
   2. Mortgage debentures.
   3. Unsecured debentures.
   4. None of the above.

The answer is B.

5. Loss on the issue of debenture is

1. 1. Current asset.
   2. Intangible asset.
   3. Current liability.
   4. Miscellaneous expense.

The answer is D.

6. After redemption, the balance in the debenture sinking fund is transferable to

1. 1. Capital redemption reserve.
   2. Sinking fund investment a/c.
   3. Debentures a/c.
   4. General reserve.

The answer is D.

7. Which is not a method of debt redemption?

1. 1. Sinking fund.
   2. Refunding.
   3. Repudiation.
   4. Terminable annuities.        

The answer is C.

8. For convertible debentures

1. 1. Interest is not paid if the company is at loss.
   2. Interest is payable.
   3. Equity shares can be allotted to debenture holders.
   4. Accumulated interest payable is converted into equity.

The answer is C.

9. By what method can large companies raise short-term finance?

1. 1. Account receivable credit.
   2. Trade credit.
   3. Deferred income.
   4. Commercial paper.

The answer is D.

10. What is the rate of commission payable on the issue of debentures?

1. 1. 3%
   2. 2%
   3. 4.5 %
   4. 2.5%

The answer is D.

11. Profit on cancellation of own debentures is transferred to

1. 1. General reserve a/c.
   2. Profit & loss a/c.
   3. Capital reserve a/c.
   4. Profit & loss appropriation a/c.

 The answer is C. 

12. Debentures could be redeemed out of

1. 1. Provision.
   2. Profit.
   3. Capital.
   4. All of the above.

The answer is D.

13. Premium on redemption of debentures is provided at the time of

1. 1. After 10 years.
   2. Issue of debentures.
   3. Writing off.
   4. Redemption of debentures.

The answer is D.

14. Debentures cannot be redeemed at

1. 1. Premium.
   2. Par.
   3. Discount.
   4. Greater premium percentage.

The answer is C.

15. Debentures bought in the open market and if not immediately canceled are to be treated as

1. Capital.
2. Current assets.
3. Investment.
4. Current liabilities.

The answer is C.

16. What are the sources of finance for the redemption of debentures?

1. 1. Redemption out of capital.
   2. Proceeds from fresh issue of debentures.
   3. Redemption out of profits.
   4. All of the above.

The answer is D.

17. Premium on redemption of debentures is

1. 1. Suspense a/c.
   2. Real a/c.
   3. Personal a/c.
   4. Nominal a/c.

The answer is D.

18. By what percentage a company creates debenture redemption reserve equivalent to the percentage of debenture issued according to the SEBI guidelines?

1. 1. 70%
   2. 50%
   3. 25%
   4. 90%

The answer is C.

19. Name the debentures that can be transferred by mere delivery.

1. 1. First debentures.
   2. Second debentures.
   3. Registered debentures.
   4. Bearer debentures.

The answer is D.

20.Transfer of DRR to general reserve is mentioned is which rule?

1. 1. Section 71(4) of Companies (Share Capital and Debentures) Rules, 2014.
   2. Rule 18(7)(c) of Companies Rule 2014. 
   3. Companies Ac 2013
   4. All of above

The answer is C.

21. The loss on an issue when debentures are issued at par & redeemable at premium is debited to

1. 1. Loss on the issue of debentures a/c.
   2. Debenture allotment and application a/c.
   3. Profit & loss a/c.
   4. Discount on issuing of thedebentures a/c.

The answer is A.

22. By what agreement, do the trustees & the company look after the interest of debenture holders?

1. 1. Partnership deed.
   2. Debenture trust deed.
   3. Both
   4. None of the above.

The answer is B.

23. Identify the false statement.

1. 1. Debentures can be issued for cash.
   2. Debentures can be issued as collateral security.
   3. Debentures can be issued instead of dividends.
   4. Debentures can be issued for consideration other than cash.

The answer is C.

24. When is the debenture reservation reserve created?

1. 1. At the closure of the previous accounting year.
   2. Before 30th April of the current year.
   3. Before redemption starts.
   4. All of the above.

The answer is C.

25. Identify the true statement.

1. 1. The debenture holder gets money back only after the company is liquidated.
   2. A debenture holder is the owner of the company.
   3. The debenture holder receives interest only if there is profit.
   4. A debenture issued at a discount can be redeemed at a premium.

The answer is D.

26. At the time of purchase of a business, excess value over net assets is credited to

1. 1. Vendor’s a/c.
   2. Goodwill a/c.
   3. General reserve.
   4. Capital reserve.

The answer is B.

27. In case of debentures being issued at discount, the discount should be written off

1. 1. Within 6 years of the issue.
   2. During the life of the debentures holder.
   3. In the year of the issue.
   4. None of the above.

The answer is B.

28. Which account is debited at the time of issuing debentures at a discount and redeemable at a premium?

1. 1. Premium on redemption of debentures a/c.
   2. Debentures a/c.
   3. Loss on the issue of debentures a/c.
   4. None of the above.

The answer is C.

29. Convertible debentures are

1. 1. Partly convertible debentures.
   2. Fully convertible debentures.
   3. Both.
   4. None of the above.

The answer is C.

30. Identify the false statement.

1. 1. Debenture stock is also transferred in fractions.
   2. Debenture stocks are also identified by distinct numbers.
   3. Debenture stock must be fully paid.
   4. All of the above.

The answer is B.

31. When can any company issues debentures?

1. 1. As collateral security.
   2. For consideration other than cash.
   3. For cash
   4. Any of the above.

The answer is D.

32. At what time the amount of debenture is returned to the holder?

1. 1. Current year.
   2. Predetermined maturity period.
   3. Company.
   4. None of the above.

The answer is B.

33. Companies Act 2013 in accord with the redemption of debentures are to protect

1. 1. Shareholders.
   2. Bankers.
   3. Creditors.
   4. Debenture holders.

The answer is D.

34. Where is the balance in debenture redemption fund a/c transferred after redemption of all debentures?

1. 1. Profit & loss appropriation a/c.
   2. General reserve.
   3. Capital reserve.
   4. None of these.

The answer is C.

35. Name the a/c to be credited while redeeming debentures at a premium.

1. 1. Debenture holder’s a/c.
   2. Bank a/c.
   3. Loss on the issue of debentures a/c.
   4. Debenture redemption premium a/c.

The answer is D.

36. Interest on debenture is to be paid at

1. 1. On premium.
   2. Amount received on the issue.
   3. Nominal value.
   4. All of the above.

The answer is C. 

37. Debenture interest is determined at

1. 1. A predetermined rate.
   2. A variable rate.
   3. Based on the net profit of the company.
   4. None of the above.

The answer is A.

38. State the nature of premium on redemption of debenture account

1. 1. Nominal a/c.
   2. Real a/c.
   3. Personal a/c.
   4. Suspense a/c.

The answer is C.   

39. What do debentures indicate?

1. 1. Director’s share in the company.
   2. Investment of equity shareholders.
   3. Long-term borrowings of the company.
   4. Short-term borrowings of the company.

The answer is C.

40. Find the false statements.

1. 1. The company can issue convertible debentures.
   2. The company can buy its shares and debentures.
   3. The company can issue redeemable debentures.
   4. The company can issue debentures with voting rights.

The answer is D.

41. What is the form of a debenture application account?

1. 1. Real a/c.
   2. Personal a/c.
   3. Nominal a/c.
   4. Current a/c.

The answer is B.

42. Discount on the issue of debentures is

1. 1. Revenue loss.
   2. Deferred revenue expenditure.
   3. Capital loss.
   4. None of the above.

The answer is C.

43. Identify the one that is not a bearer debenture.

1. 1. If interest is paid to the holder irrespective of identity.
   2. Transferred by mere delivery.
   3. Transfer requires a deed of transfer
   4. If treated differently.

The answer is C.

44. Interest to be paid in debenture is

1. 1. Company’s profit
   2. Transferred to falling funds investment a/c.
   3. Transferred to Capital reserve.
   4. Charged against the company’s profits.

The answer is D.

45. Zero-coupon bonds are issued 

1. 1. With the specified rate of interest.
   2. Without specified rate of interest.
   3. At zero interest rate.
   4. None of the above.

The answer is B.

46. Usage of debenture premium is

1. 1. Write off a capital loss.
   2. Write off the discount on the issue of shares.
   3. Write off the premium on redemption of shares and debentures.
   4. All of the above.

The answer is D.