Shares and Debentures Overview
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Shares and Debentures Overview

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Questions and Answers

What is a characteristic of convertible debentures?

  • They can be converted into shares after a specified period. (correct)
  • They are repaid only in cash, never as shares.
  • They cannot be converted to equity shares.
  • They always grant voting rights to debenture holders.

    • What are irredeemable or perpetual debentures?

  • Debentures that can be redeemed at any time.
  • Debentures that are repayable only at liquidation. (correct)
  • Debentures that confer voting rights to holders.
  • Debentures that must be redeemed within a specific period.

    • What distinguishes unsecured debentures from secured debentures?

  • Unsecured debentures are backed by the assets of the company.
  • Unsecured debentures carry a higher risk than secured debentures. (correct)
  • Secured debentures are not backed by any assets.
  • Secured debentures bear more risk than unsecured debentures.

    • Which type of debenture allows the holder to exchange part of their debenture for shares?

    <p>Partly convertible debentures.</p> Signup and view all the answers

    What does the Companies Act, 2013 restrict regarding the issuance of debentures?

    <p>Issuing debentures at a discount.</p> Signup and view all the answers

    Which of the following is true about bearer debentures?

    <p>They are repayable by mere delivery.</p> Signup and view all the answers

    What right is conferred to a shareholder that is not applicable to debenture holders?

    <p>Voting rights in company meetings.</p> Signup and view all the answers

    Why do unsecured debentures generally offer higher interest rates?

    <p>They are considered riskier due to lack of security.</p> Signup and view all the answers

    What amount of bank loan was taken according to the entry?

    <p>₹2,00,000</p> Signup and view all the answers

    What is the total amount of long-term borrowings as of 31st March, 2018?

    <p>₹12,00,000</p> Signup and view all the answers

    What is the value of the debentures issued as collateral security?

    <p>₹2,50,000</p> Signup and view all the answers

    What is the purpose of the debenture suspense account in the entries?

    <p>To hold debentures temporarily until issued</p> Signup and view all the answers

    Which of the following correctly reflects the net value of 12% debentures after accounting for the debenture suspense account?

    <p>₹10,00,000</p> Signup and view all the answers

    What is the recorded amount for the 12% debentures in the notes to accounts for 31st March, 2018?

    <p>₹12,50,000</p> Signup and view all the answers

    Which of the following entries correctly shows the loan taken from the bank?

    <p>Bank A/c Dr. 2,00,000 To Bank Loan A/c 2,00,000</p> Signup and view all the answers

    What is the purpose of issuing debentures as collateral security for the loan?

    <p>To secure the loan against the issuer's assets</p> Signup and view all the answers

    What distinguishes first mortgage debentures from second mortgage debentures?

    <p>First mortgage debentures have a first claim on the assets charged.</p> Signup and view all the answers

    Which of the following correctly defines bearer debentures?

    <p>Debentures with coupons that are cashed by presenting them.</p> Signup and view all the answers

    What type of debentures are known as unsecured debentures?

    <p>Debentures that do not have a specific charge on assets.</p> Signup and view all the answers

    What is a key characteristic of bonds when compared to debentures?

    <p>Bonds can be issued without a predetermined rate of interest.</p> Signup and view all the answers

    How can debentures be issued according to the regulations?

    <p>Debentures can be issued at par, premium, or discount.</p> Signup and view all the answers

    In the context of debentures, what does the term 'fixed charge' refer to?

    <p>A restrictive claim on specific assets of a company.</p> Signup and view all the answers

    What is the accounting treatment for the issue of debentures?

    <p>It's similar to the treatment of share issue.</p> Signup and view all the answers

    What happens if a company cannot repay its debentures on the due date?

    <p>Debenture holders can realize their money from the mortgaged assets.</p> Signup and view all the answers

    What is the amount credited to the 12% Debentures A/c when application money is transferred?

    <p>₹2,00,000</p> Signup and view all the answers

    What constitutes the Loss on issue of Debenture A/c in the application transfer process?

    <p>Combination of discount on issue and premium on redemption</p> Signup and view all the answers

    When the application money is received at a discount of 2%, how much was debited to Loss on issue of Debenture A/c?

    <p>₹14,000</p> Signup and view all the answers

    What is the total amount debited from the Bank A/c when the application money is received for ₹2,00,000 debentures?

    <p>₹2,00,000</p> Signup and view all the answers

    Which account is affected by the application money received for debentures issued at par?

    <p>12% Debenture Application &amp; Allotment A/c</p> Signup and view all the answers

    What is the premium on redemption for the debentures mentioned?

    <p>5%</p> Signup and view all the answers

    Which account receives a credit of ₹10,000 when application money is transferred at a premium?

    <p>Premium on Redemption A/c</p> Signup and view all the answers

    What was the total application money received for the debentures issued at a 2% discount?

    <p>₹1,96,000</p> Signup and view all the answers

    What was the balance brought forward (b/d) for the year 2013?

    <p>40,000</p> Signup and view all the answers

    How much was credited to the Statement of Profit & Loss in 2014?

    <p>16,000</p> Signup and view all the answers

    What was the total amount transferred to Balance c/d in 2016?

    <p>4,000</p> Signup and view all the answers

    In the year 2015, what amount was credited to the Balance c/d?

    <p>12,000</p> Signup and view all the answers

    What was the amount carried forward (c/d) for the year 2017?

    <p>0</p> Signup and view all the answers

    Which year recorded a balance b/d of 12,000?

    <p>2015</p> Signup and view all the answers

    How much was recorded as the Balance c/d in 2014?

    <p>24,000</p> Signup and view all the answers

    What was the total amount recorded in 2016 for the Statement of Profit & Loss?

    <p>8,000</p> Signup and view all the answers

    Study Notes

    Shares

    • Shares represent ownership in a company.
    • Shareholders have voting rights in the company.
    • Shares can be issued at a discount, except in the case of sweat equity shares, which are issued at a premium as a reward for a company's employees.
    • Shares are always unsecured, meaning they are not backed by any specific asset.

    Debentures

    • Debentures are debt instruments issued by companies to raise long-term capital.
    • Debentures generally bear a lower risk than shares due to their security.
    • Debentures can be secured or unsecured.

    Secured Debentures

    • Secured debentures are backed by specific assets of the company.
    • Secured debentures are further divided into fixed charge and floating charge debentures.
    • Fixed charge debentures restrict a company's ability to use mortgaged assets, while floating charge debentures allow the company to use the assets.
    • Secured debentures carry less risk than unsecured debentures.

    Unsecured Debentures

    • Unsecured debentures are not backed by any specific assets.
    • Holders of unsecured debentures are treated as unsecured creditors in case of liquidation.
    • These debentures carry a higher level of risk.

    Debenture Types

    • Irredeemable/Perpetual Debentures: These debentures are not redeemable during the lifetime of the company.
    • Convertible Debentures: These debentures allow holders to exchange them for equity shares after a specified period. This may be fully or partially convertible.
    • Bearer Debentures: These debentures are payable to the bearer, meaning their holders' names are not recorded.

    Bonds

    • Similar to debentures, bonds are also debt instruments.
    • Bonds can be issued without a predetermined interest rate, unlike debentures.
    • Deep discount bonds or zero-coupon bonds are issued at a deep discount with no predetermined interest rate.
    • The difference between the issue price and the redemption price represents the total interest accrued over the lifetime of the bond.

    Issuance of Debentures

    • Debentures can be issued at par, at a premium, or at a discount.
    • They can also be issued for consideration other than cash or as collateral security.

    Accounting Treatment of Debentures

    • The accounting treatment for the issuance of debentures is similar to the accounting treatment for shares.

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    Related Documents

    Accounting for Companies Chapter 7 & 8 PDF

    Description

    This quiz covers the fundamental concepts of shares and debentures, including their definitions, rights of shareholders, and the differences between secured and unsecured debentures. Explore how shares represent ownership in a company and the various types of debentures issued for raising capital. Test your knowledge on these important financial instruments.

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