Class 12 Issue and Redemption of Debentures Mock Test (CBSE)

Topics in Issue and Redemption of Debentures

• Meaning of debentures
• Distinction between shares and debentures
• Types of debentures
• Issue of debentures
• Over subscription
• Issue of debentures for consideration other than cash
• Issue of debentures as collateral security
• Terms of issue of debentures
• Interest on debentures
• Writing off discount or loss on issue of debentures
• Redemption of debentures

Issue and Redemption of Debentures practice questions with answers

1. Q1Multiple choice·1 mark
   A company issued $2,000$, $9\%$ debentures of $\text{Rs. } 100$ each at par, redeemable at a premium of $5\%$. The total amount of Premium on Redemption of Debentures is:

   1. (a)$\text{Rs. } 5,000$
   2. (b)$\text{Rs. } 10,000$
   3. (c)$\text{Rs. } 20,000$
   4. (d)$\text{Rs. } 15,000$
   Show answer and step marks

   1. Correct option: (b) $\text{Rs. } 10,000$ (Premium on redemption = Number of debentures $\times$ Face value $\times$ Premium percentage = $2,000 \times 100 \times 5\% = \text{Rs. } 10,000$)+1

   Answer: (b)
2. Q2Multiple choice·1 mark
   A company issued $4,000$, $8\%$ debentures of $\text{Rs. } 100$ each on $1\text{st}$ April, $2023$. The total amount of annual interest on debentures for the year ended $31\text{st}$ March, $2024$ is:

   1. (a)$\text{Rs. } 16,000$
   2. (b)$\text{Rs. } 64,000$
   3. (c)$\text{Rs. } 32,000$
   4. (d)$\text{Rs. } 80,000$
   Show answer and step marks

   1. Correct option: (c) $\text{Rs. } 32,000$ (Nominal value = $\text{Rs. } 4,00,000$; Interest = $4,00,000 \times \frac{8}{100} = \text{Rs. } 32,000$)+1

   Answer: (c)
3. Q3Short answer·2 marks
   State the order of preference for writing off 'Discount or Loss on Issue of Debentures' by a company.
   Show answer and step marks

   1. First, out of capital profits such as the Securities Premium (Reserve) Account (or Capital Reserve), if available.+1
   2. Then, the remaining balance out of revenue profits through the Statement of Profit and Loss (as finance cost). Timing is not required; if stated, credit either written off in the year the debentures are issued (current NCERT treatment) or written off over the life of the debentures.+1

   Answer: First from capital profits such as Securities Premium (or Capital Reserve), if available; then the balance from the Statement of Profit and Loss (written off in the year of issue under current NCERT, or over the life of the debentures).

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