Interest on Debentures

Q.

B. Ltd. issued 1, 000, 12% debentures of Rs 100 each on April 01, 2014 at a discount of 5% redeemable at a premium of 10%.

Give journal entries relating to the issue of debentures and debentures interest for the period ending March 31, 2015 assuming that interest is paid half yearly on September 30 and March 31 and tax deducted at source is 10%.

Q.

Interest on Debentures is a/an ___ and is debited to the Profit & Loss A/c.

1. None of these

2. Income

3. Expense

4. Revenue

Q.

Interest is payable on debentures at which rate ?

1. None of these

2. Any rate according to company`s choice

3. Fixed predetermined rate

4. On the basis of profits

Q.

Interest on debentures is calculated on ___

1. None of these

2. Face value of debentures

3. Market value of debentures

4. Purchase value of debentures

Q.

On 1st April 2017, Sunrise Ltd issued 5000, 8% Debentures of Rs. 100 each at a discount of 5%. What will be the total amount of interest for the year ending 31st March 2018?

1. 25, 000

2. 38, 000

3. 42, 000

4. 40, 000

Q.

Interest is payable even if there are no profits.

1. False

2. True

Q.

Return paid on debentures is ___

1. Tax

2. Commission

3. Dividend

4. Interest

Q. Select most appropriate alternative from those given below :

The interest on debentures is transferred to __________.
a) Debentures A/c
b) Profit of Loss A/c
c) Balance Sheet
d) Debenture holders A/c

Q. On December 31, 2010, the cash book of Mittal Bros showed on overdraft of Rs.6, 920. From the following particulars prepare a Bank Reconciliation Statement and ascertion the balance as per pass book.
i) Debited by bank for Rs. 200 on account of Interest on overdraft and Rs.50 on account of charges for collecting bills.
ii) Cheques drawn but not encashed before December 31, 2010 for Rs.4, 000.
iii) The bank has collected interest and credited Rs. 600 in pass book.
iv) A bill receivable for Rs.700 previously discounted with the bank had been dishonoured and debited in the pass book.
v) Cheques paid into bank but not collected and credited before December 31, 2010 amounted Rs.6, 000.

Q. Interest is debited to asset account in ______________.

1. Insurance policy method
2. Diminishing balance method
3. Depletion method
4. Annuity method

Q.

Which of the following statements is false?

1. The issue price and redemption value of debentures cannot differ

2. Debenture is a form of public borrowing

3. Debenture interest is a charge against profits

4. It is customary to prefix debentures with the agreed rate of interest

Q. For interest in capital, _______________ a/c is to be debited under past adjustments through profit and loss adjustment account

1. Profit and loss
2. Profit and loss adjustment
3. Partner's capital
4. Partner's current

Q. Select the most appropriate alternative from those given below:
Interest on loan taken is debited to ______ A/c.

1. Profit and Loss
2. Trading
3. Profit and Loss Appropriation
4. Capital

Q. Return paid on debentures is interest.

1. False
2. True

Q.

B.Ltd. issued debentures at 94% for Rs 4, 00, 000 on April 01, 2011 repayable by five equal drawings of Rs 80, 000 each. The company prepares its final accounts on March 31* every year.

Indicate the amount of discount to be written-off every accounting year assuming that the company decides to write off the debentures discount during the life of debentures. (Amount to be written-off: 2011 Rs 6, 000; 2012 Rs 6, 800; 2013 Rs 5, 200; 2014 Rs 3, 600; 2015 Rs 2, 000; 2016 Rs 400).

*It should be December 31

Q. Interest on debentures is calculated on the market value of debentures.

1. True
2. False

Q. Interest is payable even if there are no profits.

1. True
2. False

Q. Interest on performing assets should be recognized on ___________ basis.

1. actually received
2. standard
3. accrual
4. None of these

Q. The figure of base year is taken as _______.

1. 80
2. 100
3. 150
4. 120

Q.

PRACTICAL PROBLEMS

Journalise the following bill transactions as on 31^st July, 2011 in the books of Pratapsing.

A. Renewed Vinyak’s acceptance of Rs 6, 000 due on 31^st July, 2011 by accepting cash Rs 2, 000 and drawing bill for the balance with interest @ 18% p.a. for 3 months.

B. Accepted a bill of Rs 5, 000 at 3 months at sight, drawn by Arvind for the amount due to him Rs 6, 000 and balance paid by cheque.

C. Jethabhai honoured his acceptance of Rs 9, 800 which was deposited into bank for collection and bank debited Rs 80 for bank charges.

D. Bank informed that Prajakta’s acceptance of Rs 4, 000 which was discounted dishonoured, bank paid noting charge Rs 85. Renewed at her request for next 2 months with interest @ 18% p.a.