2. Debenture
• Debenture: It is a document issued by a company under its
common seal acknowledging the debt and it also contains the
terms of repayment of debt and payment of interest at a
specified rate.
• Section 2 (30) of Companies Act, 2013 defines debenture as
“Debenture includes debenture stock, bonds or any other
instrument of a company evidencing a debt, whether
constituting a charge on the company’s assets or not.”
2BCCC 0011 Company Accounts And Practices
3. Reliance Industries raises Rs 8,500cr
from NCDs offering 7.20% return
• Reliance Industries has mopped up Rs 8,500 crore
from the sale of non-convertible debentures (NCDs),
cashing in on the cheaper funds flooding the debt market
that is starved of quality paper, priced it at 7.20 percent..
3BCCC 0011 Company Accounts And Practices
4. Latest issues of debentures
4BCCC 0011 Company Accounts And Practices
Company Name Issue Open Issue Close
Issue Size (Rs
Cr)
Muthoot Fincorp Limited Sep 28, 2020 Oct 23, 2020 200
Kosamattam Finance Ltd Sep 16, 2020 Oct 13, 2020 150
Muthoottu Mini Financiers Ltd Sep 09, 2020 Sep 24, 2020 100
Muthoot Fincorp Ltd Jun 29, 2020 Jul 13, 2020 100
Muthoottu Mini Financiers Ltd Jun 03, 2020 Jun 26, 2020 100
KLM Axiva Finvest Ltd Jun 02, 2020 Jun 26, 2020 100
Kosamattam Finance Ltd Mar 19, 2020 May 22, 2020 150
Sakthi Finance Ltd Mar 13, 2020 Apr 30, 2020 100
Muthoot Vehicle & Asset Fin
Ltd
Feb 25, 2020 Mar 11, 2020 100
JM Financial Products Ltd Feb 13, 2020 Mar 09, 2020 100
Muthoottu Mini Financiers Ltd Jan 20, 2020 Feb 12, 2020 100
Muthoot Fincorp Limited Jan 09, 2020 Feb 04, 2020 250
5. Tata Capital Housing Finance Ltd NCD
(Tata Capital Housing NCD Jan 2020)
5BCCC 0011 Company Accounts And Practices
Issue Open Jan 7, 2020 - Jan 8, 2020
Security Name Tata Capital Housing Finance Ltd
Security Type Secured, Redeemable, Non-Convertible
Debentures (Secured NCDs) and/or
Unsecured Subordinated Non-Convertible
Debentures (Unsecured NCDs)
Issue Size (Shelf) Rs 5,000.00 Crores
Issue Price Rs 1000 per NCD
Face Value Rs 1000 each NCD
Minimum Lot size 10 NCD
Market Lot 1 NCD
Listing At BSE, NSE
Credit Rating CRISIL AAA/ Stable, ICRA AAA/ stable
Tenor 36 months/ 60 months/ 96 months/ 120
months
Payment Frequency Monthly and Annual
Basis of Allotment First Come First Serve Basis
6. Features of Debentures
• It is a document known as Debenture Certificate.
• It is an acknowledgement of debt by the company.
• It is an agreement between the company and its debenture
holders for repayment of the principal amount on a specified
date along with interest at a pre-determined rate charged on
the principal amount until the principal is repaid.
• It is an evidence of a debt to the holder usually arising out of
a loan and mostly secured by a charge.
6BCCC 0011 Company Accounts And Practices
7. • It is a common practice to prefix ‘Debentures’
with the rate of interest like if the rate of interest
is 10%, the title of the debentures will be ‘10%
Debentures’.
• It is treated as an external equity or long term
borrowings by the company.
• It is usually secured by way of charge on the
assets of the company.
• The interest charged on debentures is a charge
against profit.
BCCC 0011 Company Accounts And Practices 7
8. Debenture holders:
• They are the persons to whom debentures are issued by a
company.
• These persons are lenders to the company as they provide
funds in exchange of debentures issued to them.
8BCCC 0011 Company Accounts And Practices
9. Types of Debentures
• i. Security point of view:
• a. Secured: Such debentures are secured by either a fixed
charge or a floating charge on the assets of the company. Such
charge is to be registered with the Registrar of the Companies.
• b. Unsecured: Such debentures are not secured by any
charge on assets of the company.
9BCCC 0011 Company Accounts And Practices
10. ii. Redemption point of view
• a. Redeemable: Such debentures are repayable by the
company at the end of a specified period or by instalments
during the existence of the company.
• b. Irredeemable: Such debentures are not repayable
during the lifetime of the company and are repayable only
when the company is liquidated.
10BCCC 0011 Company Accounts And Practices
11. iii. Records/ Negotiability
point of view
• a. Registered: Such debentures are registered in the
company’s records in the holder’s name. All amounts towards
principal and interest are to be paid to the registered
debentureholder only. Any transfer of such debentures
requires execution of transfer deed.
• b. Bearer: Such debentures are not registered in the records
of the company in the name of the holder. They are easily
transferable by mere delivery. Interest is paid to the person
who produces coupons attached to the debenture.
11BCCC 0011 Company Accounts And Practices
12. iv. Priority point of view:
• a. First Debentures: Such debentures are to be repaid
before the other debentures.
• b. Second Debentures: Such debentures are to be repaid
after the first debentures are redeemed
12BCCC 0011 Company Accounts And Practices
13. v. Coupon rate point of view:
• a. Specific Coupon Rate: Such debentures are issued with
a specified rate of interest, called the coupon rate. This rate
may be either fixed or floating. If it’s a floating rate, it is
usually linked with the bank rate . ex 10% Debentures
• b. Zero Coupon Rate (Bonds): Such debentures do not
carry a specific rate of interest. They are issued at a
substantial discount. Such difference between the face value
and issue price is the total amount of interest related to the
duration of debentures.
13BCCC 0011 Company Accounts And Practices
14. Convertibility point of view:
• a. Convertible: Such debentures are convertible into
shares. Where only a part of the debentures amount is
convertible into Equity Shares, they are known as Partly
Convertible Debentures. However, when full amount of
debentures is convertible into Equity Shares, they are known
as Fully Convertible Debentures.
• b. Non-Convertible: Such debentures are not convertible
into shares.
14BCCC 0011 Company Accounts And Practices
15. Disclosure of Debentures in
the Balance Sheet
• Since these are the borrowings of a company, they are considered
as liability and therefore, shown in the Equity and Liabilities part of
the Balance Sheet.
• They can be disclosed either as Non-Current or Current Liability
depending upon the tenure of such debentures. An important point
to remember is that unless the question requires otherwise,
debentures are shown as Long-term Borrowings under Non-
current Liabilities.
• Non-Current Liability: This is done when Debentures are due for
redemption after 12 months from the reporting date i.e., the date
of Balance Sheet or after the period of Operating Cycle. The date of
issue of debentures determines whether these debentures are
Long-term borrowings or Short-term Borrowings.
15BCCC 0011 Company Accounts And Practices
16. Concept of Minimum Subscription
with respect to Debentures
• a company cannot allot securities unless minimum
subscription stated in the prospectus is received.
• Such minimum subscription is therefore, to be decided by the
company. As per SEBI, 75% of the issue should be subscribed
before a company allots debentures.
16BCCC 0011 Company Accounts And Practices
17. INTEREST ON DEBENTURES
Interest on Debentures is calculated at a fixed rate on its face
value and is usually payable half yearly & is paid even company
is suffering from loss because it is charge on profit.
• Income Tax is deducted from interest before payment to
debenture holders. It is called T.D.S. (Tax deducted at source)
17BCCC 0011 Company Accounts And Practices
18. Interest on Debentures
i. It is a charge against profit of the company and is payable
whether the company earns profit or incurs loss.
ii. It is calculated at a fixed rate of interest on the nominal (face)
value.
iii. It is not payable on debentures issued as collateral security.
iv. It is prefixed on debentures i.e., if the rate is 15% p.a. then
debentures will be titled ‘15% Debentures.’
v. Balance in the Debentures’ Interest Account is transferred to
Statement of Profit and Loss (Finance Cost) at the end of the
year.
vi. Interest payment may be subject to TDS
18BCCC 0011 Company Accounts And Practices
19. 19BCCC 0011 Company Accounts And Practices
1. When interest is Due
Debentures Interest A/c Dr. (Gross Interest)
To Debentures holder A/c (Net Interest)
To Income Tax Payable A/c
(Income Tax
Deducted)
2. When Interest is paid
Debentures Holder A/c Dr. (With Interest)
To Bank A/c
3. On payment of Income Tax to Government
Income Tax Payable A/c Dr.
To Bank A/c
(Amount of Income)
4.
On Transfer of Interest on Debenture to
statement of profit and Loss A/c
(Tax deducted at
source)
Statement of Profit and Loss Dr.
To Debenture Interest A/c (Amount of Interest
20. Issue of Debentures
Debentures can be issued in following ways:
20BCCC 0011 Company Accounts And Practices
for cash
for consideration other than cash
As collateral security
21. Issue of Debentures for Cash
• It means that the company has received an amount (in cash
or cheque) against the debentures issued.
• When debentures are issued at cash, they may be issued at
par, premium or at discount.
21BCCC 0011 Company Accounts And Practices
22. When Debentures amount
received in lump sum with the
application
22BCCC 0011 Company Accounts And Practices
On receipt of
application
money
Bank A/c Dr.
To Debenture
Application
and Allotment A/c
With the application
money
received
On acceptance
of application
money
Debenture Application
and Allotment A/c Dr.
To X% Debentures A/c
To Bank A/c
With Amount of
application
money on allotted
debentures, and
Excess amount
refunded.
23. When Debentures amount
received in installments.
• In this case accounting entries will be same as at the time of
issue of shares in instalments with small change in the name
of term like-
• the share capital word replaced with the X% Debentures A/c,
and Share word replaced with Debentures
• e.g. Equity share capital into 8% Debentures, Equity share
application into Debentures Application and follows on.
23BCCC 0011 Company Accounts And Practices
24. Issue of Debentures for
Consideration other than Cash:
• It means that the company has not received amount (in cash
or cheque) against the debentures issued.
Such issue of debentures can be issue to promoters for their
services, to vendors against assets purchased, etc.
• .
24BCCC 0011 Company Accounts And Practices
25. 25BCCC 0011 Company Accounts And Practices
Debentures
Issued for
purchases
Asset at par
Sundry Asset A/c Dr.
To Vendor
With the purchases
consideration
Vendor Dr.
To Debenture Account
When
Debentures
are issued
for
purchases of
asset at
premium
Sundry Assets A/c Dr.
To Vendor With the purchases
Consideration
No. of debentures par
value
No. of debentures x
premium
Vendor Dr.
To Debenture A/c
To Security Premium
Reserve A/c
26. When business is
Purchased
26BCCC 0011 Company Accounts And Practices
Sundry Assets A/c Dr. (Value of asset)
Goodwill A/c (BF) Dr. (PC > Value of assets)
To Sundry Liabilities A/c ( Value of liabilities)
To Capital Reserve A/c ( PC < Value of assets)
To Vendor (Purchases Consideration)
Vendor A/c Dr
To % Debenture A/c
(Being Debenture issued)
27. Issue of Debentures as a
Collateral Security
• Collateral security means security provided to lender in addition to
the principal security.
• It is a subsidiary or secondary security.
• Whenever a company takes loan from bank or from any financial
institution it may issue its debentures as secondary security which
is in addition to the principal security. Such an issue of debentures
is known as ‘issue of debentures as collateral security’.
• The lender will have a right over such debentures only when
company fails to pay the loan amount and the principal security is
exhausted. In case the need to exercise the right does not arise
debentures will be returned back to the company.
• No interest is paid on the debentures issued as collateral security
because company pays interest on loan.
27BCCC 0011 Company Accounts And Practices
28. Accounting methods
• In the accounting books of the company issue of debentures
as collateral security can be credited in two ways :
• First method : No Journal entry to be made in the books of
accounts of the company for debentures issued as collateral
security. A note of this fact is given in this case.
• Second method : Entry to be made in the books of accounts
of the company.
28BCCC 0011 Company Accounts And Practices
29. What is Redemption of
Debentures?
Redemption of debentures refers to payment of the
amount of debentures by the enterprise.
• Debentures can be redeemed either at par or at a premium.
• The terms and conditions of redemption are usually given in
the prospectus inviting applications for the issue of
debentures.
29BCCC 0011 Company Accounts And Practices
30. Methods of Redemption of
Debentures:
30BCCC 0011 Company Accounts And Practices
Payment in lump sum
Payment in instalments
Purchase in the open market
By conversion into shares or new debentures
31. Redemption of Debentures
by Lump-sum Payment
• When the total amount of debentures is paid
to the debenture holders in lump-sum on
maturity or even before maturity, it is known
as Redemption of debentures in lump-sum.
• In this case, the time of repayment is known in
advance and the company can plan its
financial resources accordingly
BCCC 0011 Company Accounts And
Practices
31
32. Redemption of Debentures in
Payment in instalments
• Under this method, the debentures are
redeemed in instalments and debentures to
be redeemed are selected by draw
• For example, total debentures of 2,00,000
may be redeemed at the rate of 50,000 per
annum. Debentures of 50,000 to be redeemed
each year are selected by lottery
BCCC 0011 Company Accounts And
Practices
32
33. Redemption of Debentures
by Conversion
• Under this method, the debentures are
redeemed by converting them into new
class debentures or shares.
• At the time of conversion, new shares or
debentures can be issued at par or at a
premium or at a discount
BCCC 0011 Company Accounts And
Practices
33
34. Journal Entry
• Debentures A/c Dr. (with a face value of
debentures converted)
• Discount on issue of shares/debentures Dr.
(with the amount of discount,(bf)
• To Share Capital/Debentures(new)
(with face value of new shares or debentures
issued)
• To Securities Premium (with the
amount if securities premium, (BF)
BCCC 0011 Company Accounts And
Practices
34
35. Debentures by Purchase From
Open Market
• When a company purchases its own
debentures through stock exchanges for the
purpose of cancellation such an act of
purchasing and cancellation is known as
Redemption Of Debentures By purchasing
them in the Open Market
BCCC 0011 Company Accounts And
Practices
35
36. When Debentures Are Purchased for Immediate Cancellation:
A company may immediately cancel the debentures so purchased. For this, a resolution
must be passed by the Board of Directors
1. When Purchase Cost
of Own Debentures =
Nominal Value of
Debentures
(i) On Purchase of Own Debentures:
Own Debentures A/c (with purchase cost) Dr.
To Bank A/c
(ii) On Cancellation of Own Debentures:
….%Debentures A/c Dr.
To Own Debentures A/c
2. When Purchase Cost
of Own Debentures <
Nominal Value of
Debentures
(i) On Purchase of Own Debentures:
Own Debentures A/c (with purchase cost) Dr.
To Bank A/c
(ii) On Cancellation of Own Debentures:
….%Debentures A/c Dr.
To Own Debentures A/c
To Gain or Profit on Cancellation of Own Debentures A/c
(iii) On transfer of profit on cancellation of debentures
Gain or Profit on Cancellation of Own Debentures
A/c Dr.
To Capital Reserve A/c
BCCC 0011 Company Accounts And
Practices
36
37. What is Debenture
Redemption Reserve (DRR)?
• DRR is a reserve created out of profits for redeeming debentures.
• a Company is required to transfer an amount equal to at least 25%
of the value of debentures to the Debenture Redemption Reserve
a/c before redemption of debentures.
• For example, let's say that a company ABC Pvt Ltd. issues Rs. 20
lakhs in debentures on the 1st of April of 2020 with a maturity date
of March 2025. Here, as per the companies act, ABC Pvt Ltd. needs
to assemble 25% of Rs. 20 lakhs as debenture redemption reserve
before the maturity date of the debenture.
• Shown in the Equity and Liability part of the Balance Sheet under
the head ‘Shareholders’ fund and sub-head ‘Reserves and Surplus’.
37BCCC 0011 Company Accounts And Practices
38. • Investment in the Specified Securities:
• at least 15% of the nominal value of the debentures to be
redeemed during the year should be invested on or before
30th April of the year in which the redemption is to be made.
• Exemption to Create DRR
• All India Financial Institutions (AIFIs) regulated by RBI
• Banking Companies
• When all the debentures are redeemed, DRR Account is
closed by transferring the amount to General Reserve.
38BCCC 0011 Company Accounts And Practices
39. (1) On Transfer of
Profits From
Surplus
Surplus or P&L A/c Dr. *****
To Debenture Redemption Reserve A/c *****
(2) On Investment
or Making Deposit
in the Specified
Securities
Debenture Redemption Reserve A/c Dr. *****
To Bank A/c *****
(3) On Debentures
Becoming Due for
Payment
a) If debentures are to be redeemed at Par:
Debentures A/c Dr. *****
To Debenture holders A/c *****
b) If debentures are to be redeemed at Premium:
Debentures A/c Dr. *****
Premium on Redemption of Debentures A/c Dr. *****
To Debenture holders A/c *****
BCCC 0011 Company Accounts And
Practices
39
40. (4) On Encashment
of Investment
Bank A/c Dr. *****
To Debenture Redemption Reserve A/c *****
(5) On Redemption
of Debentures
Debenture holders A/c Dr. *****
To Bank A/c *****
(6) On Transfer of
DRR to General
Reserve
Debenture Redemption Reserve A/c Dr. *****
To General Reserve A/c *****
BCCC 0011 Company Accounts And
Practices
40
41. Various cases of Issue of Debentures
from the redemption point of view
• Debentures issued at par, at premium or at discount may be
redeemed either at par or at premium:
• Debentures redeemable at par: It means debentures are
redeemable at their nominal (face) value.
• Debentures redeemable at premium: It means debentures
are redeemable at a value that is higher than their nominal
(face) value. :
41BCCC 0011 Company Accounts And Practices
42. Depending on the terms of issue and
redemption of debentures, there may
be six cases of redemption as follows
• Issued at par and redeemable at par
• Issued at discount and redeemable at par
• Issued at a premium and redeemable at par
• Issued at par and redeemable at a premium
• Issued at a discount and redeemable at a premium
• Issued at a premium and redeemable at a premium
42BCCC 0011 Company Accounts And Practices
43. Table Showing all 6 cases
BCCC 0011 Company Accounts And
Practices
43
ISSUE Redemption Account Effected
PAR PAR
DISCOUNT PAR Discount On issue of debentures A/c Dr
PREMIUM PAR Security Premium A/c Cr
PAR PREMIUM Loss on issue of Debenture Dr &
Premium on redemption A/c Cr.
DISCOUNT PREMIUM Loss on issue of Debenture Dr &
Premium on redemption A/c Cr
PREMIUM PREMIUM Loss on issue of Debenture Dr &
Premium on redemption A/c Cr,
Security Premium A/c Cr,
44. 1. Issue at par and redeemable at par
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(b) Debenture Application & Allotment A/c Dr.
To Debentures A/c (Allotment of debentures)
2. Issue at a discount and redeemable at par
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(b) Debenture Application & Allotment A/c Dr.
Discount on Issue of Debentures A/c Dr.
BCCC 0011 Company Accounts And
Practices
44
45. 3. Issue at premium and redemption at par
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(b) Debenture Application & Allotment A/c Dr.
To Debentures A/c
To Securities Premium A/c (Allotment of debentures at a premium)
4. Issue at par and redeemable at premium
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(b) Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
To Debentures A/c
To Premium on Redemption of Debenture A/c
(Allotment of debentures at par and redeemable at a premium)
BCCC 0011 Company Accounts And
Practices
45
46. 5. Issue at discount and redemption at premium
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(b) Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
To Debentures A/c
To Premium on Redemption of Debentures A/c
6. Issued at a premium and redeemable at premium
(a) Bank A/c Dr.
To Debenture Application & Allotment A/c
(b) Loss on Issue of Debentures A/c Dr.
To Debentures A/c (with nominal value of debenture)
To Securities Premium A/c (with premium on issue)
To Premium on Redemption of Debentures A/c
BCCC 0011 Company Accounts And
Practices
46
47. Example 1:
• Give Journal entries for the following:
1. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at par and
redeemable at par.
2. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at premium
of 5% but redeemable at par.
3. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of
5% repayable at par.
4. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at par but
repayable at a premium of 5%.
5. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at discount of
5% but redeemable at premium of 5%.
6. Issue of Rs. 1,00,000, 9% debentures of Rs. 100 each at premium
of 5% and redeemable at premium of 5%
47BCCC 0011 Company Accounts And Practices
48. 1.
Bank A/c Dr.
To 9% Debenture Application & Allotment A/c
(Debentures Application money received)
1,00,000
1,00,000
Debenture Application & Allotment A/c Dr.
To 9% Debentures A/c
(Application money transferred to Debentures
Account)
1,00,000
1,00,000
2.
Bank A/c Dr.
To 9% Debenture Application & Allotment A/c
(Debentures application money received)
1,05,000
1,05,000
Debenture Application & Allotment A/c Dr.
To 9% Debentures A/c
To Securities Premium A/c
(Debentures application money transferred to
Debentures & Securities Premium account
105000
100000
5000
BCCC 0011 Company Accounts And
Practices
48
49. 3. Bank A/c Dr.
To 9% Debenture Application & Allotment A/c
(Debentures application money received)
95,000
95,000
9% Debenture Application & Allotment A/c Dr.
Discount on Issue of Debentures A/c Dr.
To 9% Debentures A/c
(Debentures application money transferred to
Debentures account)
95,000
5,000
1,00,000
4.
Bank A/c Dr.
To 9% Debenture Application & Allotment A/c
(Debentures Application money received)
1,00,000
1,00,000
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
To 9% Debentures A/c
To Premium on Redemption of Debentures A/c
(Debentures Application money transferred to
Debentures account)
100000
5000
100000
5000
BCCC 0011 Company Accounts And
Practices
49
50. 5. Bank A/c Dr.
To 9% Debenture Application & Allotment A/c
(Debentures Application money received)
95,000
95,000
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
To 9% Debentures A/c
To Premium on Redemption of Debentures A/c
(Debentures application money transferred to
debentures and Premium on debenture account)
95,000
10,000
1,00,000
5,000
6. Bank A/c Dr.
To 9% Debenture Application & Allotment A/c
(Debentures Application money received)
1,05,000
1,05,000
Debenture Application & Allotment A/c Dr.
Loss on Issue of Debentures A/c Dr.
To 9% Debenture A/c
To Premium on Redemption of Debentures A/c
To Securities Premium A/c
(Debenture application money transferred to
debentures account)
1,05,000
5,000
1,00,000
5,000
5,000
BCCC 0011 Company Accounts And
Practices
50
51. • A Ltd. decided to redeem Rs. 2,12,500 12% debentures. It
purchased Rs. 1,70,000 debentures in the open market at Rs.
98.50 each the expenses being Rs. 100 and redeemed the
balance of Rs. 42,500 debentures by draw of lots.
51BCCC 0011 Company Accounts And Practices
52. 52BCCC 0011 Company Accounts And Practices
Date Particulars Debit Credit
12% debentures A/c Dr.
To Bank A/c
To profit on redemption of debentures
1,70,000
1,68,300
1,700
12% debentures A/c Dr.
To bank A/c
42,500
42,500
Profit on redemption of debenture A/c Dr.
To capital reserve
1,700
1,700
Profit & loss appropriation A/c Dr.
To debenture redemption reserve A/c
2,12,500
2,12,50
53. • XYZ Ltd. issued 6,000, 15% debentures of Rs. 100 each at par
on January 1, 2015. The due date for payment of interest on
these debentures is December 31 every year. The debentures
are redeemable at par in three equal installments, beginning
from the end of 3rd year. Prepare 15% Debentures Account &
Debenture Interest Account.
53BCCC 0011 Company Accounts And Practices
56. • Kayaan Ltd. purchased its own debentures of Rs 100 each of
the face value of Rs. 70,000 from the open market for
cancellation at Rs 95. Record necessary journal entries.
•
56BCCC 0011 Company Accounts And Practices
57. Example 5: AB&D Ltd redeemed 5,000 15% Debentures of Rs 10
each at a premium of 10 % on 31st March 2018. Debenture
holders were given equity shares of Rs 10 each at premium of Rs
10 per share. Journal entries in the books of Anil Ltd will be:
Amount of Debenture due for payment = Total number of
Debentures X Value of per Debenture
= 5,000 X 10
= 50,000
Amount of premium on redemption of per Debenture = 10 X
10/100 = 1
Total amount of premium payable = No of Debenture to be
redeemed X Amount of premium on redemption of per
Debenture
= 5,000 X 1
= 5,000
57BCCC 0011 Company Accounts And Practices
58. Total amount due to Debenture holders = 50,000 + 5,000
= 55,000
Issue price of share = 10 + 10
Issue price of share = 20
= (50,000+5,000)/20
= 2,750
Entry for amount due to Debentureholders on conversion of 5,000 15 %
BCCC 0011 Company Accounts And
Practices
58
60. MCQ
60BCCC 0011 Company Accounts And Practices
1. Which is a document issued by a company under its
common seal acknowledging the debt
A. Debenture
B. Share
C. Stock
2.Debenture is treated as an………… by the company
A. Assets
B. Equity
C. long term borrowings
61. 61BCCC 0011 Company Accounts And Practices
3. Is the debentures are secured by way of charge
on the assets of the company.
A. Yes
B. No
4. The interest charged on debentures is a
A. Appropriation against profit.
B. charge against profit.
C. Reserve
62. 62BCCC 0011 Company Accounts And Practices
5. persons Who are lenders to the company as they provide
funds in exchange of debentures is called
A. Shareholders
B. Debentureholders
C. Stackholders
6. Such debentures are secured by either a fixed charge or a
floating charge on the assets of the company Called
A. Unsecured debentures
B. Convertible debentures
C. Secured Debentures
D. First Debentures
E. Unsecured Debentures
63. 63BCCC 0011 Company Accounts And Practices
7. Such debentures are not secured by any
charge on assets of the company
A. Unsecured debentures
B. Convertible debentures
C. Secured Debentures
D. First Debentures
E. Unsecured Debentures
64. 64BCCC 0011 Company Accounts And Practices
• 8. Such debentures are to be repaid before
the other debentures.
A. First debentures
B. Secured Debentures
C. Redeemable Debenture
D. Irredeemable Debentures
E. Unsecured Debentures
65. 65BCCC 0011 Company Accounts And Practices
9. Such debentures are not repayable during the
lifetime of the company and are repayable only
when the company is liquidated.
A. Secured Debentures
B. Redeemable Debenture
C. Irredeemable Debentures
D. Unsecured Debentures
66. 66BCCC 0011 Company Accounts And Practices
• 10. Such debentures are convertible into
shares.
A. Unsecured debentures
B. Convertible debentures
C. Secured Debentures
D. Redeemable Debenture
67. 67BCCC 0011 Company Accounts And Practices
11. Such debentures are issued with a specified
rate of interest, This rate may be either fixed or
floating
A. Unsecured debentures
B. Convertible debentures
C. Specific coupon Rate Debentures
D. Secured Debentures
E. Zero coupon bond (Debenture)
68. 68BCCC 0011 Company Accounts And Practices
12 Such debentures do not carry a specific rate
of interest. They are issued at a substantial
discount.
A. Unsecured debentures
B. Convertible debentures
C. Specific coupon Rate
D. Secured Debentures
E. Zero coupon bond (Debenture)
69. 69BCCC 0011 Company Accounts And Practices
• 13. Balance in the Debentures’ Interest
Account is transferred to ……..at the end of the
year.
A. Balance Sheet – Liability side
B. Profit and loss A/c
70. 70BCCC 0011 Company Accounts And Practices
• 14. The journal entry of When interest is Due
is Interest on debentures A/c debited and
…………..A/c Credited
A. Debentures
B. Debenture holder A/c
71. 71BCCC 0011 Company Accounts And Practices
15. In Journal entry of payment to debenture
holders the ……….A/c Debited ,to bank.
A. Debentures
B. Debenture holder A/c
72. • 16. Debentures can be issued for
A. for cash
B. for consideration other than cash
C. As collateral security
D. All of the above
BCCC 0011 Company Accounts And
Practices
72
73. 17. When Debentures amount received in lump
sum with the application ,so the journal entry is
bank a/c Debited, and ………….A/c Credited
A. Debenture holder A/c
B. % Debentures Application & Allotment A/c
BCCC 0011 Company Accounts And
Practices
73
74. 18. Debentures Issued for purchases Asset at par
so at the time of company issued the
debentures , Vendor A/c is debited and …… A/c
is credited
A. % Debenture A/c
B. Debentureholder A/c
BCCC 0011 Company Accounts And
Practices
74
75. 19. When business is Purchased and there is a
difference between net assets and purchase
consideration , and net assets is more than
purchase consideration so which account is
opended
A. Goodwill A/c Debited
B. Capital reserve A/c is credited
BCCC 0011 Company Accounts And
Practices
75
76. 20. When business is Purchased and there is a
difference between net assets and purchase
consideration , and purchase consideration is
more than net assets so which account is
opended
A. Goodwill A/c Debited
B. Capital reserve A/c is credited
BCCC 0011 Company Accounts And
Practices
76
77. 21. Security provided to lender in addition to
the principal security is called
A. Main security
B. Collateral security
C. Primary security
BCCC 0011 Company Accounts And
Practices
77
78. • 22. Is mandatory to pass Journal entry in the
books of accounts of the company for
debentures issued as collateral security.
A. Yes
B. No
BCCC 0011 Company Accounts And
Practices
78
79. MCQ ( More than 1 options)
• 23. If we pass journal entry of debentures
issued at collateral security so
A. Debenture A/c Debited
B. Debenture A/c Credited
C. Debenture suspense a/c credited
D. Debenture suspense a/c debited
BCCC 0011 Company Accounts And
Practices
79
80. • 24. What are the method of redemption of
debentures
A. Payment in lump sum
B. Payment in installments
C. Purchase in the open market
D. By conversion into shares or new debentures
E. All of the above
BCCC 0011 Company Accounts And
Practices
80
81. • 25. Debentures can be redeemed
A. at par
B. at a premium
C. Both
BCCC 0011 Company Accounts And
Practices
81
82. • 26. When the total amount of debentures is
paid to the debenture holders in full on
maturity or even before maturity, it is known
as Redemption of debentures in
A. Payment in lump sum
B. Payment in installments
C. Purchase in the open market
D. By conversion into shares or new debentures
BCCC 0011 Company Accounts And
Practices
82
83. • 27. the debentures are redeemed in
installments and debentures to be redeemed
are selected by draw, it is known as
Redemption of debentures in
A. Payment in lump sum
B. Payment in installments
C. Purchase in the open market
D. By conversion into shares or new debentures
BCCC 0011 Company Accounts And
Practices
83
84. • 28. the debentures are redeemed by
converting them into new class debentures or
shares. it is known as Redemption of
debentures in
A. Payment in lump sum
B. Payment in instalments
C. Purchase in the open market
D. By conversion into shares or new debentures
BCCC 0011 Company Accounts And
Practices
84
85. • 29. When the redemption of debentures By
conversion into shares or new debentures is
happened so debentures account debited and
……..A/c is credited
A. Equity shares A/c
B. Bank
C. P&L A/c
BCCC 0011 Company Accounts And
Practices
85
86. • 30. When a company purchases its own
debentures through stock exchanges for the
purpose of cancellation such an act of purchasing
and cancellation is known
A. Payment in lump sum
B. Payment in instalments
C. Purchase in the open market
D. By conversion into shares or new debentures
BCCC 0011 Company Accounts And
Practices
86
87. • 31. On Cancellation of Own Debentures the
%Debentures A/c Dr. and
A. To Equity shares A/c
B. To Bank A/c
C. To Own Debentures A/c
BCCC 0011 Company Accounts And
Practices
87
88. 32. a reserve created out of profits for
redeeming debentures
A. DRR
B. CRR
C. SLR
BCCC 0011 Company Accounts And
Practices
88
89. 33. a Company is required to transfer an amount
equal to at least ………….of the value of
debentures to the Debenture Redemption
Reserve a/c before redemption of debentures
A. 25%
B. 15%
C. 5%
BCCC 0011 Company Accounts And
Practices
89
90. 34. at least ………of the nominal value of the
debentures to be redeemed during the year
should be invested on or before 30th April of the
year in which the redemption is to be made
A. 25%
B. 15%
C. 5%
BCCC 0011 Company Accounts And
Practices
90
91. • 35. DRR Account is closed by transferring the
amount to…………..
A. General Reserve
B. Capital Reserve
C. Capital Redemption reserve
BCCC 0011 Company Accounts And
Practices
91