Issue and Redemption of Debentures

Topics in this chapter

• Debenture Concepts and Issue Terms
• Issue of Debentures and Vendor Settlement
• Debentures as Collateral Security
• Loss on Issue and Write-Off
• Redemption Methods and Premium
• Debenture Redemption Reserve and Investment
• Conversion, Purchase, and Cancellation
• Debenture Entries and Balance Sheet Presentation

Cheat sheet

Practice questions

1. Question 1Q-9ABABF

   What is the maximum limit of discount on the issue of debentures as per the Companies Act, 2013?

   1. A.10% of the nominal value
   2. B.15% of the nominal value
   3. C.There is no legal limit prescribed by the Companies Act, 2013
   4. D.5% of the nominal value
   See the answer and solution
2. Question 2Q-C234A3

   X Ltd. issued 1,000, 9% debentures of Rs. 100 each at a discount of 10%, redeemable at par after 5 years. What is the total amount of Loss on Issue of Debentures account to be written off if the discount is to be written off over the life of the debentures?

   1. A.Rs. 1,00,000
   2. B.Rs. 10,000 per year
   3. C.Rs. 50,000
   4. D.Rs. 1,10,000
   See the answer and solution
3. Question 3Q-B5B7F9

   According to the Companies Act, 2013, what is the percentage of Debenture Redemption Reserve (DRR) required to be created out of profits before the redemption of debentures begins for non-banking financial companies (NBFCs) registered with RBI and HFCs?

   1. A.10%
   2. B.25%
   3. C.50%
   4. D.Nil (0%)
   See the answer and solution
4. Question 4Q-995DE5

   When debentures are issued as collateral security for a loan taken from a bank, which of the following alternative entries can be passed in the books of the company?

   1. A.Debit Bank A/c and Credit Debentures A/c
   2. B.No entry is passed, only a note is given in the Balance Sheet
   3. C.Debit Debenture Suspense A/c and Credit Percentage Debentures A/c, or pass no entry except disclosure
   4. D.Debit Loan A/c and Credit Percentage Debentures A/c
   See the answer and solution
5. Question 5Q-3FC6C1

   Which account is debited when the company decides to write off 'Discount on Issue of Debentures' or 'Loss on Issue of Debentures'?

   1. A.Statement of Profit and Loss only
   2. B.Capital Reserve or Statement of Profit and Loss
   3. C.General Reserve or Statement of Profit and Loss
   4. D.Securities Premium Reserve (if available) or Statement of Profit and Loss
   See the answer and solution