{"id":20789,"date":"2021-03-16T12:59:08","date_gmt":"2021-03-16T07:29:08","guid":{"rendered":"https:\/\/mcq-questions.com\/?p=20789"},"modified":"2022-03-02T10:48:29","modified_gmt":"2022-03-02T05:18:29","slug":"ncert-solutions-for-class-12-accountancy-chapter-7","status":"publish","type":"post","link":"https:\/\/mcq-questions.com\/ncert-solutions-for-class-12-accountancy-chapter-7\/","title":{"rendered":"NCERT Solutions for Class 12 Accountancy Chapter 7 Issue and Redemption of Debentures"},"content":{"rendered":"

Detailed, Step-by-Step NCERT Solutions for 12 Accountancy<\/a> Chapter 7 Issue and Redemption of Debentures Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.<\/p>\n

Issue and Redemption of Debentures NCERT Solutions for Class 12 Accountancy Chapter 7<\/h2>\n

Issue and Redemption of Debentures Questions and Answers <\/span>Class 12 Accountancy Chapter 7<\/h3>\n

Test your Understanding-1 (Page No. 112-113)<\/span>
\nState whether the following statements are True (T) or False (F):<\/span><\/p>\n

1. Debenture is a written instrument acknowledging a debt under the common seal of the company.
\nAnswer:
\nTrue<\/p>\n

2. Debenture is a part of owned capital.
\nAnswer:
\nFalse<\/p>\n

3. The payment of interest on debentures is a charge on the profits of the company.
\nAnswer:
\nTrue<\/p>\n

4. The debentures cannot be issued at a discount of more than 10% of the face value.
\nAnswer:
\nFalse<\/p>\n

\"NCERT<\/p>\n

5. Redeemable debentures are those debentures, which are payable on the expiry of the specific period.
\nAnswer:
\nTrue<\/p>\n

6. Perpetual debentures are also known as irredeemable debentures.
\nAnswer:
\nTrue<\/p>\n

7. Debentures cannot be converted into shares.
\nAnswer:
\nFalse<\/p>\n

8. Debentures cannot be issued at a premium.
\nAnswer:
\nFalse<\/p>\n

9. A Collateral Security is a Subsidiary Security.
\nAnswer:
\nTrue<\/p>\n

10. Debentures cannot be issued at a premium and redeemable at par.
\nAnswer:
\nFalse<\/p>\n

11. Loss on issue of debentures-account is a revenue loss.
\nAnswer:
\nFalse<\/p>\n

12. Premium on redemption of debentures account is shown under the ‘Securities Premium’ in the Balance Sheet.
\nAnswer:
\nFalse<\/p>\n

Test your Understanding-II (Page No. -136, 137, 138)
\n<\/span>Select the correct answer for the following multiple choice questions:<\/span><\/p>\n

Question 1.
\nDebenture which are transferable by mere delivery are
\n(a) Registered debentures
\n(b) First debentures
\n(c) Bearer debentures
\nAnswer:
\n(c) Bearer debentures<\/p>\n

\"NCERT<\/p>\n

Question 2.
\nThe following journal entry appears in the books of X Co. Ltd.
\n\"NCERT
\n(a) 15%
\n(b) 5%
\n(c) 10%
\nAnswer:
\n(b) 5%<\/p>\n

Question 3.
\nX Co. Ltd. purchased assets worth Rs. 28,80,000. It issued debentures of Rs. 100 each at a discount of 4 percent in full satisfaction of the purchase consideration. The number of debentures issued to vendor is :
\n(a) 30,000
\n(b) 28,800
\n(c) 32,000
\nAnswer:
\n(a) 30,000<\/p>\n

Question 4.
\nConvertible debentures cannot be issued at a discount if
\n(a) They are to be immediately converted
\n(b) They are not to be immediately converted
\n(c) None of the above.
\nAnswer:
\n(a) They are to be immediately converted<\/p>\n

Question 5.
\nDiscount on issue of debentures is shown under the following head in the Balance Sheet :
\n(a) Profit & Loss Account
\n(b) Miscellaneous Expenditure
\n(c) Debentures Account
\nAnswer:
\n(b) Miscellaneous Expenditure<\/p>\n

\"NCERT<\/p>\n

Question 6.
\nWhen debentures are issued at par and are redeemable at a premium, the loss on such an issue debited to :
\n(a) Profit & Loss Account
\n(b) Debentures Applications & Allotment Account
\n(c) Loss on Issue of Debentures Account.
\nAnswer:
\n(c) Loss on Issue of Debentures Account.<\/p>\n

Question 7.
\nExcess value of net assets over purchase consideration at the time of purchase of business is credited to :
\n(a) General reserve
\n(b) Capital reserve
\n(c) Vendor’s account
\nAnswer:
\n(b) Capital reserve<\/p>\n

Question 8.
\nWhen all the debentures are redeemed, balance in the debentures redemption fund account is transferred to :
\n(a) Capital reserve
\n(b) General reserve
\n(c) Profits and loss appropriation account
\nAnswer:
\n(b) General reserve<\/p>\n

Question 9.
\nThe nominal and book values of debenture redemption fund investments account are respectively Rs. 1,00,000 and Rs. 96,000. The company sold investments of nominal value of Rs. 30,000 at a price which was just sufficient to redeem debentures of Rs.30,0 at 10% premium, the profits on sale of investment is :
\n(a) Rs. 4,200
\n(b) Rs. 3,000
\n(c) Rs. Nil
\nAnswer:
\n(a) Rs. 4,200<\/p>\n

Question 10.
\nOwn debentures are those debentures of the company which :
\n(a) The company allots to its own promoters
\n(b) The company allots to its Director
\n(c) The company purchases from the market and keeps them as investments.
\nAnswer:
\n(c) The company purchases from the market and keeps them as investments.<\/p>\n

\"NCERT<\/p>\n

Question 11.
\nProfit on cancellation of own debentures is transferred to :
\n(a) Profit and loss appropriation a\/c
\n(b) Debenture redemption reserve
\n(c) Capital reserve
\nAnswer:
\n(c) Capital reserve<\/p>\n

Question 12.
\nWhen debentures are redeemed out of profits, an equal amount is transferred to :
\n(a) General reserve
\n(b) Debenture redemption reserve
\n(c) Capital reserve
\nAnswer:
\n(b) Debenture redemption reserve<\/p>\n

Question 13.
\nProfit on sale of debenture redemption fund investments in the first instance is credited to :
\n(a) Debenture redemption fund account
\n(b) Profit and Loss appropriation account
\n(c) General reserve account
\nAnswer:
\n(a) Debenture redemption fund account<\/p>\n

Question 14.
\nThe balance of sinking fund investment account after the realisation of investment is transferred to :
\n(a) Profit and loss account
\n(b) Debentures account
\n(c) Sinking fund account
\nAnswer:
\n(c) Sinking fund account<\/p>\n

Question 15.
\nWhen debentures are issued at a discount and are redeemable at a premium, which of the following accounts is debited at the time of issue :
\n(a) Debenture account
\n(b) Premium on redemption of debentures account
\n(c) Loss on issue of debentures account.
\nAnswer:
\n(c) Loss on issue of debentures account.<\/p>\n

Test Your Understanding III (Page No-138)<\/span><\/p>\n

Question 1.
\nIndicate in the column below, the account to be debited in case of the following transactions.
\nAnswer:
\n\"NCERT
\n1. Vendors A\/c
\n2. Profit & Loss Appropriation A\/c
\n3. Debentures Redemption Reserve A\/c
\n4. Own Debentures A\/c
\n5. Profit & Loss A\/c<\/p>\n

\"NCERT<\/p>\n

II. Indicate in the column below, the account to be credited in case of the following transactions.
\n\"NCERT
\n\"NCERT
\nAnswer:
\n6. Debenture A\/c
\n7. Sinking Fund A\/c
\n8. General Reserve A\/c
\n9. Debenture Redemption Reserve A\/c
\n10. Loss on issue of Debenture A\/c<\/p>\n

Do it Yourself (Page No. 89-90)<\/span><\/p>\n

Question 1.
\nAmrit Company Limited purchased assets of the book value of Rs. 2,20,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000,10% debentures of Rs. 100 each at a premium of 10%. Record necessary journal entries.
\nAnswer:
\n\"NCERT<\/p>\n

Question 2.
\nA company purchased assets of the value of Rs. 1,90,000 from another company and agreed to make the payment of purchase consideration by issuing 2,000,10% debentures of Rs. 100 each at a discount of 5%. Record necessary journal entries.
\nAnswer:
\n\"NCERT<\/p>\n

Question 3.
\nRose Bond Limited purchased a business for Rs. 22,00,000. Purchase Price was paid by 6% debentures. Debentures of Rs. 20,00,000 were issued at a premium of 10% for the purpose. Record necessary journal entries.
\nAnswer:
\n\"NCERT<\/p>\n

Question 4.
\nNikhil and Ashwin Limited bought business of Agarwal Limited consisting sundry assets of Rs. 3,60,000, sundry creditors Rs. 1,00,000 for a considerations of Rs. 3,07,200. It issued 14% debentures of Rs. 100 each fully paid at a discount of 4% in satisfaction of purchase consideration. Record necessary journal entries.
\nAnswer:
\n\"NCERT<\/p>\n

\"NCERT<\/p>\n

Do it Yourself (Page No. 101-102)<\/span><\/p>\n

Question 1.
\nNena Limited issued 50,000 10% debentures of Rs. 100 each on the basis of the following conditions :
\na. Debentures issued at par and redeemable at par.
\nb. Debentures issued at discount @ 5% and redeemable at par.
\nc. Debentures issued at premium@ 10% and redeemable at par.
\nd. Debentures issued at par and redeemable at premium @ 10%.
\ne. Debentures issued at discount of 5% and redeemable at a premium of 10%.
\nf. Debentures issued at premium of 6% and redeemable at a premium of 4%
\nRecord necessary journal entries in the above mentioned cases at the time of issue and redemption of debentures
\nAnswer:
\n\"NCERT
\n\"NCERT
\n\"NCERT
\n\"NCERT<\/p>\n

\"NCERT<\/p>\n

Question 2.
\nRecord necessary journal entries in each of the following cases.
\na. 27,000, 7% debentures of Rs. 100 each issued at par, redeemable at par.
\nb. 25,000, 7% debentures of Rs. 100 each issued at par redeemable at 4% premium.
\nc. 20,000,7% debentures of Rs. 100 each issued at 5% discount and redeemable at par.
\nd. 30,000,7% debentures of 100 each issued at 5% discount and redeemable at 2% % premium.
\ne. 35,000,7% debentures of Rs. 100 each issued at 4% premium and redeemable at par.
\nAnswer:
\n\"NCERT
\n\"NCERT
\n\"NCERT
\n\"NCERT<\/p>\n

Do it Yourself (Page No. 110-111)<\/span><\/p>\n

Question 1.
\nX Ltd. Issued 2000,10% debentures of Rs. 100 each at a discount of 8% on 1 Jan, 1992 which are redeemable at par by annual drawings in 4 years commencing from 31st Dec. 1993 as per the following redemption plan: 1st Draw 10%, 2nd Draw, 20%, 3rd Draw 30%, and 4th Draw 40%. Calculate the amount of discount to be written off each year assuming that X Ltd. follows calender year as its accounting year.
\nAnswer:
\n\"NCERT<\/p>\n

Question 2.
\nZ Ltd. issued 15,00,000,10% debenture of Rs. 50 each at premium of 10% payable as Rs. 20 on application and balance on allotment. Debentures are redeemable at par after 6 years. All the money due on allotment was called and duly received. Record necessary entries when premium money is included :
\n(i) In application money
\n(ii) In allotment money
\nAnswer:
\n\"NCERT<\/p>\n

\"NCERT
\n\"NCERT<\/p>\n

\"NCERT<\/p>\n

Question 4.
\nM Ltd. issued 10,000, 8% debentures of Rs. 100 each at a premium of 10% on 1.1.2004. It purchased sundry assets of the value of Rs. 2,50,000 and took over the liabilities of Rs. 1,90,000 and issued 8% debentures at a discount of 5% to the vendor. On the same date it took loan from the Bank for Rs. 1,00,000 and issued 8% debentures as Collateral Security. Record the relevant journal entries in the books of M. Ltd. and prepare the extract of balance sheet on 31.12.2004. Ignore interest.
\nAnswer:
\n\"NCERT
\n\"NCERT<\/p>\n

Question 5.
\nOn 1.1.2005 Fast Computer Ltd. issued 20,00,000, 6% debentures of Rs. 100 each at a discount of 4%, redeemable at a premium of 5% after three years. The amount was payable as follows : On application Rs. 50 per debenture Balance on allotment. Record the necessary journal entries for “issue of debentures”. Answer: In the books of Fast Computer Ltd.
\nAnswer:
\n\"NCERT<\/p>\n

Question 6.
\nD Ltd. Purchased machinery worth Rs. 2,00,000 from E Ltd. on 1.1.2001. Rs. 50,000 were paid immediately and the balance was paid by issue of Rs. 1,60,000,12% Debentures in D Ltd. Record the necessary journal entries for recording the transactions in the books of D Ltd.
\nAnswer:
\n\"NCERT<\/p>\n

Do it Yourself (Page No. 118)<\/span><\/p>\n

Question 1.
\nX Ltd. decides to redeem 8,000,10% debentures of Rs. 100 each on January 1, 2004 at a premium of 5%. The company has a balance of Rs. 9,00,000 at the credit of its profit and loss account. The company closes its books on December 31 every year. What Journal entries the company will be recorded to redeem the above debentures.
\nAnswer:
\n\"NCERT<\/p>\n

\"NCERT<\/p>\n

Question 2.
\nG Ltd. issued 5,00,000,12 % debenture of Rs. 100 each on April 1,2002 redeemable at par on July 1,2003. The company received applications for 6,00,000 debentures and the allotment was made to all the applicants on pro-rata basis. The debenture were redeemed on due date. How much amount of Debenture Redemption Reserve is to be created before the redemption is carried out? Also record necessary journal entries regarding issue and redemption of debenture. Ignore tax deducted at source.
\nAnswer:
\n\"NCERT<\/p>\n

Do it Yourself (Page No. 139)<\/span><\/p>\n

Question 1.
\nG Ltd. has 800 lakhs, 10% debenture of Rs. 100 each due for redemption on March 31, 2003. Assume that Debenture Redemption Reserve has a balance of Rs. 3,40,00,00,000 on that date. Record necessary entries at the time of redemption of debenture.
\nAnswer:
\n\"NCERT<\/p>\n

\"NCERT<\/p>\n

Question 2.
\nR Ltd. Issued 88,00,000, 8% debenture of Rs. 50 each at a premium of 5% on July 1, 2000 redeemable at par by conversion of debenture into shares of Rs. 20 each at a premium of Rs. 2 per share on June 30, 2003. Record necessary entries for redemption of debenture.
\nAnswer:
\n\"NCERT<\/p>\n

Question 3.
\nC Ltd. has outstanding 11,00,000,10% debentures of Rs. 200 each, on April 1, 2003. The Board of Directors have decided to purchase 20% of own debenture for cancellation at Rs. 200 each. Record necessary entries for the same.
\nAnswer:
\n\"NCERT<\/p>\n

Question 4.
\nRecord necessary journal entries in the books of the Company in following case for redemption of 1,000,12% Debentures of Rs. 10 each issued at par :
\n(a) Debentures redeemed at par by conversion into 12% Pref. Shares of Rs. 100 each.
\n(b) Debentures redeemed at a premium of 10% by conversion into Equity Share issued at par.
\n(c) Debentures redeemed at a premium of 10% by conversion into Equity Shares issued at a premium of 25%.
\nAnswer:
\n\"NCERT
\n\"NCERT<\/p>\n

\"NCERT<\/p>\n

Question 5.
\nOn 31.1.2005 Janta Ltd. converted its Rs. 88,00,000, 6% debentures into equity shares of Rs. 20 each at a premium of Rs. 2 per share. Record necessary journal entries in the books of the company for redemption of debentures.
\nAnswer:
\n\"NCERT<\/p>\n

Question 6.
\nAnirudh Ltd. has 4,000, 8% debentures of Rs. 100 each due for redemption on March 31,2005. The company has a debenture redemption reserve of Rs. 1,50,000 on that date. Assuming that no interest is due record the necessary journal entries at the time of redemption of debentures.
\nAnswer:
\n\"NCERT<\/p>\n

Short Answer Type Questions<\/span><\/p>\n

Question 1.
\nWhat is meant by a Debenture?
\nAnswer: Meaning of Debenture\u2014The term, “debenture” has been
\nderived from the Latin word “debre” which means “to borrow”. Thus, it is a written document acknowledging a debt under the common seal of the company and containing a contract for the repayment of the principal sum at a specified date and for the payment of interest (usually half yearly) at a fixed rate percent until the principal sum is repaid.
\n“Debenture includes debenture stock, Bond and any other securities , of a company whether constituting a charge on the assets of the company or not.” – Section 2 (12) of the Companies Act, 1956<\/p>\n

“A debenture is a document given by a company as evidence of a debt to the holder usually arising out of a loan and most commonly secured by a charge” – Topham<\/p>\n

\"NCERT<\/p>\n

“Debenture as a document under company’s seal which provides for the repayment of a principal sum and interest there on at regular intervals which is usually secured, by fixed or floating charge on the company’s property and which acknowledges loan of a company.” – E. Thomas<\/p>\n

“Debenture means a document which either creates a debt or acknowledges it and any document which fulfills either of these conditions.” – CHitty j.<\/p>\n

Question 2.
\nWhat does a Bearer Debenture mean?
\nAnswer:
\nFrom the view point of Registration, Bearer debentures are the debentures which are payable to the bearer thereof. It can be transfered by way of delivery and the company does not keep any record of the debenturehblders. Interest on debenture is paid to a person who produces the interest coupon attached to such debentures.<\/p>\n

Question 3.
\nState the meaning of ‘Debentures issued as a Collateral Security’.
\nAnswer:
\nCollateral security means an additional security to obtain secured loan. The borrower mav issue bond\/debentures by way of additional security in favour of lender known as collateral security. If borrower fails to repay the loan along with interest in time, the lender is at liberty to recover his dues from the sale of primary security in the first instance. If the realisable value of primary security is insufficient to clear the dues, the lender has the right to invoke the benefit of collateral security whereby, the debentures may either be presented for redemption or sold in the market.<\/p>\n

Accounting Treatment: Debentures kept as security, create no immediate liability to the company, therefore no journal entry is passed, but when lender invokes his right vested in the collateral security, the liability of company arise. In such a situation the following journal entry is recorded in the books of company.<\/p>\n

\"NCERT<\/p>\n

LoanA\/c — Dr.
\nOutstanding Interest A\/c — Dr.
\nTo Debenture A\/c<\/p>\n

Collateral security creates a contingent liability which has to be disclosed the balance sheet of the company.
\nBalance Sheet as at.
\n\"NCERT<\/p>\n

Question 4.
\nWhat is meant by ‘Issue of Debentures for Consideration other than Cash’?
\nAnswer:
\nIssue of Debenture for Consideration Other than Cash : Whenever a company purchases some assets or properties from the vendor or supplier, debentures or bonds may be issued in consideration of purchase price of such assets or properties. Such issue of debentures is known as issue of debentures for consideration other than cash.<\/p>\n

When debentures are issued to the vendor or suppliers of patents, copyrights and transfer of intellectual property rights in the satisfaction of the purchase consideration. The following journal entries are to be passed in the books of company :
\n\"NCERT<\/p>\n

Question 5.
\nWhat is meant by ‘Issue of debenture at discount and redeemable at premium’?
\nAnswer:
\nDebenture Issued at discount and redeemable at Premium: In this situation the issue price is less than par value but redemption value is more than par value. The difference between the redemption price and the issue price is treated as discount\/loss on issue of debenture.<\/p>\n

Suppose, a 12% debenture of Rs. 100 is issued at a discount of Rs. 10 and redeemable at a premium of Rs. 5 per debenture, the amount of loss will be equal to Rs. 90 – Rs. 105 = Rs. 15. This is to be treated as loss on issue. It is to be noted that premium on redemption of debentures is also credited by Rs. 5.
\n\"NCERT
\n\"NCERT<\/p>\n

Question 6.
\nWhat is ‘Capital Reserve’?
\nAnswer:
\nMeaning of Capital Reserve : Capital reserve means any amount which is not available for distribution as a dividend through profit and loss account. Capital reserves are generally created out of profit which are of extraordinary nature or capital receipts and not out of operating profits.<\/p>\n

\"NCERT<\/p>\n

Some of the sources of the capital profits in the case of a limited company are :<\/p>\n