Chapter 10

Issue of Debentures
CHAPTERAT A GLANCE

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1. MULTIPLE CHOICE QUESTIONS

Select the correct alternative: 6. Pick the odd one out on the basis of borrowing
1.
from the following:
is awritten instrument or document
issued by the company acknowledging debt. (1) Issue of Debentures for Cash
(2) Issue of Debentures to Promoters
(1) Equity Share
(2) Preference Share (3) Issue of Debentures to Underwriters
(3) Debenture (4) Issue of Debentures as Collateral Security
(4) Bank Loan 7. Debentures are shown as under
the main head if they are due
2. Debentureholders are of the
for redemption after 12 months or after the
company.
period of Operating Cycle from the date of
(1) Owners Balance Sheet.
(2) Creditors (1) Other Current Liabilities; Current Liabilities
(3) Promoters (2) Short-term Borrowings, Current Liabilities
(4) Lenders (3) Long-term Borrowings; Non-current Liabilities
3. Unlike Shares, debentures can be issued at (4) Other Long-term Borrowings; Non-current
(1) Par. Liabilities
(2) Premium. 8. Debentures are shown as under
the main head if they are due for
(3) Discount.
(4) Par only.
redemption within 12 months or within the period
of Operating Cycle from the date of Balance
4. An investor would prefer to invest in the Sheet.
(1) Other Current Liabilities;
of acompany rather than its because Current Liabilities
(2) Short-term Borrowings; Current
are more secured than Liabilities
(1) Shares; Debentures; Shares; Debentures (3) Long-term Borrowings; Non-current Liabilities
(2) Debentures; Shares; Debentures; Shares (4) Other Long-term Borrowings: Non-current
(3) Shares; Debentures; Debentures; Shares Liabilities
9. On 1st April, 2020, Lux Ltd.
(4) Debentures; Shares; Shares; Debentures 9% Debentures of 100 each
issued 50,000,
31st January, 2022. While redeemable on
5. Pick the odd one out from the following: preparing Balance
(1) Public Deposit Sheet as on 31st March, 2021, the
classify these 9% Debentures as company will
(2) Bond
(3) Debentures (1) Current Maturities of
Short-term Debts under
the sub-head Other Current
(4) Equity Shares main head Current Liabilities and
Liablities.
 CHAPTER 10. IssUE OF 117
(2)Short-term
DEBENTURES
Current Liabilities.
Borrowings under the head (1) Other Current Liabilities; Current Liabilities.
(3) Current:Maturities of (2) Short-term Borrowings; Current Liabilities.
Long-term Debts under
*he sub-head Other Current (3) Long-term Borrowings; Non-current Liabilities.
Liabilities and
main head Current Liabilities. (4) Other Long-term Borrowings; Non-current
IA) Other Current Liabilities under the head Liabilities.
Current Liabilities, 13. In case of winding up of the company, payment
of is made after repayment of
10. MaxX Ltd. has outstanding 8% Debentures of
3 A0.00,000 as on 31st March, 2022, out of
(1) Debentures; Share Capital
hich 8% Debentures of R 10,00,000 are due for
(2) Share Capital; Debentures
redemption on 30th September, 2022, 8%
Debentures which are payable (3) Secured Loan; Debentures
on 30th
September, 2022 will be shown as (4) Debentures; Unsecured Loan
14. and are the debt
in the Balance Sheet as on 31st March, 2022.
instruments whose rate of interest is not
(1) Current Maturities of Short-term Debts pre-defined.
under the sub-head Other Current Liabilities
(1) Debentures;Share Capital
and main head Current Liabilities
(2) Debentures; Bank Loan
(2) Short-term Borrowings under the head
(3) Deep Discount Bond; Debentures
Current Liabilities
(4) Deep Discount Bond; Zero Coupon Bond
(3) Current Maturities of Long-term Debts under
Short-term Borrowings and main head 15. Debentures which are transferable by mere
delivery are called
Current Liabilities
(1) Redeemable Debentures.
(4) Other Short-term Borrowings under the (2) Registered Debentures.
head Current Liabilities
(3) Bearer Debentures.
Debentures of
11. MG Ltd. has outstanding 12% (4) Non-convertible Debentures.
out of which
? 60,00,000 as on 31st March, 2021, 16. Debentures which are not redeemable
in cash
12% Debentures of 15,00,000 are due for
are termed as
2022. While
redemption on 31st January, (1) Non-convertible Debentures.
31st March, 2021,
preparing Balance Sheet as on
12% Debentures, which (2) Fully Convertible Debentures.
the company will classify
January, 2022, as (3) Partly Convertible Debentures.
are not payable on 31st
(4) Irredeemable Debentures.
the main head
(2) Long-term Borrowings under Debentures are
17. and
Non-current Liabilities.
categorised on the basis of security.
Borrowings under the head Current
(2) Shot-term (1) Secured; Unsecured
Liabilities.
(2) Registered; Bearer
of Long-term Debts
(3) Current Maturities (3) Convertible; Non-convertible
Other Current Liabilities
under the sub-head (4) Redeemable; Irredeemable
Current Liabilities.
and main head
under the company cannot
Non-current Liabilities 18, As per Companies Act, 2013, a
(4) Other
Non-current Liabilities. issue
main head
Ltd, issued 80,000, (1) Unsecured Debentures.
12. On 1st April, 2020, Dixy redeemable on
of 100 each (2) Fully Convertible Debentures.
10% Debentures preparing Balance
2026. While (3) Bearer Debentures.
31st January, company will
March, 2022, the (4) Irredeemable Debentures.
Sneet as on 31st
Debentures as
Classify these 10%
 TestFitCUET(UG)-2022 AcCOUNTANCY
118
27. Hosket Ltd. issued 20,000, 10%
19. When issue price of debentures is payable in
Iump sum, the amount received on application is
100 each to a vendor of
satisfaction of his claim. The amount d
Debentu re
machinerys of
in
Vendor was? 19,00,000. In the books due
credited to
(1) Debentures Account.
nf to
company, Machinery Account will be
(2) Debentures Application Account.
(3) Debentures Application and Allotment Account. (1) ? 19,00,000. (2) 20,00,000. by debited
(4) Bank Account.
(3) 18,00,000. (4) 21,00,000.
20. When issue price of debentures is payable in 28. Axiom Ltd. issued 10,000, 10% Debentures..
instalments, the amount received on application 100 each at par toa vendor in consideration
is credited to purchase of machinery costing? 11,00,000 infal
(1) Debentures Account. satisfaction of his claim. In the books of the
(2) Debentures Application Account. company, Machinery will be recorded at
(3) Debentures Application and Allotment Account. (1) 11,00,000. (2) 10,00,000.
(4) Bank Account. (3) 9,00,000. (4) 12,00,000.
21.
means securing the loan by 29. Hobbs Ltd. issued 80,000, 12% Debentures of
specific or all assets towards the loan andmortgaging 100each at par to a vendor of sundry assets in
it with the Registrar of registering satisfaction of the due amount. The amount
(1) Collateral
Companies. due to Vendor was ? 84,00,000. While making
(2) Charge
(3) Appropriation (4) None of these the payment in consideration, the entry passed
22. Issue of debentures at a would be:
price that is more than
its nominal (face) value is (1) Dr. Vendor's A/c by ? 84,00,000;
termed as
(1) Issue of Debentures at Par. Cr. 12% Debentures A/c by ?
80,00,000 and
(2) Issue of Debentures at Profit. Capital Reserve A/c by R 4,00,000.
(3) Issue of Debentures at (2) Dr. 12% Debentures A/c by
Premium. 80,00,000 and
(4) Issue of Debentures at
Discount. Goodwill A/c by4,00,000;
23. Issue of debentures at a Cr. Vendor's A/c by 84,00,000.
price that is less than its (3) Dr. Vendor's A/c by
face value is termed as
Cr. 12%
80,00,000;
(1) Issue of Debentures at Par. Debentures A/c by 80,00,000.
(2) Issue of Debentures at Loss. (4) Dr. Vendor's A/c by
(3) Issue of
84,00,000;
Cr. 12% Debentures A/c by
Goodwill A/c byR 4,00,000.80,00,000
Debentures at Premium. and
(4) Issue of Debentures at
Discount. 30.
24. It is not necessary to pass an Victory Ltd. issued 20,000, 9%
of account for the issue of
entry in the books {100 each at a Debentures of
discount of 2%, redeemable at a
debentures,
(1) Debentures are issued for Cash.
if
premium of 3% after 8 years. The issue price was
(2) Debentures are issued as payable with application. The entry
other than Cash. consideration allotment of Debentures would passed on
(1) Dr. Bank A/c; be:
(3) Debentures are issued as
(4) None of the above.
Collateral Security. Cr. Debentures
Application
A/c by 19,60,000.
and Allotment
25. If entry is passed for
Debentures issued as (2) Dr. Debentures Application and Allotment
Collateral Security, the entry is: A/c by ? 19,60,000 and
(1) Dr. ...%
Debentures A/c and
Suspense A/c.
Cr. Debentures Issue of Debentures A/c by Discount on
Cr. 9% 40,000;
(2) Dr. Debentures Suspense A/c and Cr. ..% (3) Debentures
Dr. Debentures
A/c by 20,00,000.
Debentures A/c.
A/c by ?
Application and Allotment
(3) Dr. ...% Debentures A/c and Cr.
Bank Alc. 19,60,000 and
Loss on Issue ol
(4) Dr. Bank A/c and Cr. ..%
Debentures Alc. Debentures A/c
Cr. 9%
by 1,00,000;
Debentures A/c by
Premium on Redemption 20,00,000
26. Unless agreed otherwise, purchase consideration ano
is equal to of Debentures
A/c by 60,000.
(1) Net Assets. (4) Dr. Bank Ac by
(2) Net Assets + Goodwill. 19.60,000 and Loss on
Issue of Debentures A/c by 1,00,000;
(3) Net Assets - Capital Reserve. Cr. Debentures Alc
(4) Cash Paid. Premium on by20,00,000
Redemption of Debentures
and
A/c by 60,000.
 CHAPTER 10, ssUE OF DEBENTURES 119
1 Bareza Ltd. issued 30,000, 10%
F 100 each at a discount of 5%, Debentures
of 34. When Debentures are shown in the Balance Sheet
redeemable
nar after 10 years, The issue price
at as Long-term Borrowings, Premium on Redemption
was payable of Debentures is shown under the
with application. The entry passed on
of Debentures will be:
allotment (1) main head 'Non-current Liabilities' and
(1) Dr. Bank A/c; sub-head'Long-term Borrowings'.
Cr. Debentures (2) main head 'Non-current Liabilities' and
Application and Allotment sub-head 'Other Long-term Liabilities'.
A/c by 28,50,000.
(2) Dr. (3) main head 'Non-current Liabilities' and
Debentures Application and Allotment sub-head Other Long-term Borrowings'
A/c by? 28,50,000
and Discount on
Issue of Debentures A/c by 1,50,000; (4) main head 'Current Liabilities' and sub-head
Cr. 10% Debentures A/c by 'Other Current Liabilities'.
30,00,000. 35. When Debentures are shown in the Balance
(3) Dr. Debentures Application and
Allotment Sheet as Current Maturities of Long-term Debts,
A/c by 28,50,000;
Dr. Loss on Issue of Premium on Redemption of Debentures is shown
Debentures A/c by under the
?1,50,000; (1) Main head 'Current Liabilities' and sub-head
Cr. 10% Debentures A/c by
28,50,000; and 'Other Short-term Borrowings'.
Premium on Redemption of Debentures
A/c by 1,50,000. (2) Main head Non-current Liabilities' and
(4) Dr. Bank A/c by sub-head 'Other Long-term Liabilities'.
28,50,000 and Loss on
Issue of Debentures A/c by 1,50,000; (3) Main head 'Non-current Liabilities' and
Cr. Debentures A/c by 30,00,000. sub-head 'Other Long-term Borrowings.
(4) Main head 'Current Liabilities' and sub-head
32. Escon Ltd. Issued 15,000, 10% Debentures of
'Other Current Liabilities'.
? 100 each at a premium of 5%, redeemable at
36. Discount or Loss on Issue of Debentures is written
par after 10 years. The issue price was payable
off from and/or
with application. The entry passed on allotment
of Debentures would be: (1) Capital Reserve; Securities Premium; Statement
of Profit & Loss
(1) Dr. Bank A/c;
Cr. Debentures Application and Allotment A/c (2) Securities Premium; Statement of Profit & Loss
by 15,75,000. (3) Statement of Profit &Loss; Securities Premium;
(2) Dr. Debentures Application and Allotment A/c Capital Reserve
by 15,75,000; (4) Securities Premium; Statement of Profit &
Loss; Capital Reserve
Cr. 10% Debentures A/c by 15,00,000 and
Premium on Issue of Debentures A/c by 37. When debentures are issued at
discount and
775,000. redeemable at premium, amount debited to Loss
(3) Dr. Debentures Application and Allotment on Issue of Debentures Account is
equal to
A/c by 15,75,000; (1) Discount on Issue of Debentures.
Cr. 10% Debentures A/c by 15,00,000 and (2) Premium Payable on Redemption of
Debentures.
Securities Premium or Securities Premium (3) Difference between (1) and (2).
Reserve A/c by 75,000. (4) Sum of (1) and (2).
(4) Dr. Bank A/c by 15,75,000; 38. Beetle Ltd. issued 60,000, 9%
Cr. 10% Debentures A/c by 15,00,000and
Debentures of
100 each at a discount of 6%,
Securities Premium or Securities Premium
redeemable at a
premium of 4% after 10 years. The issue price
Reserve A/c by ? 75,000. was payable with application. The entry passed
33. When deberntures are redeemable at premium, on allotment of Debentures would be:
loss because of premium payable at the time of (1) Dr. Bank A/c and
redemption is provided at the time of issue of Cr. Debentures Application and Allotment
debentures due to A/c by 56,40,000.
(1) Cost Concept of Accounting. (2) Dr. Debentures Application and Allotment
(2) Accrual Concept of Accounting. A/c by? 56,40,000 and Discount on
(3) GoingConcern Concept. Issue of Debentures A/c by 3,60,000;
(4) Prudence Concept. Cr. 9% Debentures Alc by ? 60,00,000.
120 TestFit CUET(UG)-2022 AccoUNTANCY

41. NIC Ltd. issued 80,000, 12%

(3) Dr. Debentures Application and Alotment
A/c by 56,40,000and Loss on Issue of each at a discount of 3%. The
Debentures of 100
Debentures A/c by 6,00,000; balances in Securities Premium or company has
Cr. 9% Debentures A/c by 60,00,000 and
Premium on Redenption of Debentures
Premium Reserve and
1,80,000 and 80,000 respectively.
Capital
of
Securities
Reserve
(4)
A/c by 2,40,000.
Dr. Bank A/c by 56,40,000 and Loss on
on Issue of Debentures will be written oft Discount
passing the entry as:
Issue of Debentures A/c by ? 6,00,000; (1) Dr. Statement of Profit & Loss and
Cr. 9% Debentures A/c by 60,00,000 and
Cr. Discount on Issue of Debentures
Premium on Redemption of Debentures
2,40,000.
AJc by
A/c by 2,40,000.
39. Boon Ltd. Issued 25,000, 10% (2) Dr. Securities Premium Reserve A/c h
* 100 each at a premium of 5%,
Debentures of 7 1.80,000 and Statement of Profit &.
redeemable at Loss by 60,000;
premium of 5% after 10 years. The issue price
was payable with application. The entry passed Cr. Discount on Issue of Debentures Alc hy
on allotment of Debentures would be: 72,40,000.
(1) Dr. Bank A/c and (3) Dr. Capital Reserve A/c by ? 80,000 and
Cr. Debentures Application and Securities Premium Reserve A/c by
by 26,25,000.
Allotment A/c
? 1,60,000;
(2) Dr. Debentures Application and Cr. Discount on Issue of
Allotment A/c
by ? 26,25,000 and Loss on lssue of Debentures A/c by
2,40,000.
Debentures A/c by 1,25,000; (4) Anyof the above.
Cr. 10%Debentures A/c by
Securities Premium Reserve25,00,000,
A/c by
42. Duster Ltd. issued 45,000, 9%
Debentures of
71,25,000 and Premium on Redemption 100 each at a discount of 3%
redeemable at 5%
of Debentures A/c by premium. The company has balances in Securities
(3) Dr. 1,25,000. Premium and Capital Reserve of 2,50,000 and
Debentures Application and Allotment A/c
by ? 26,25,000; ?1,20,000 respectively. Loss on Issue of Debentures
Cr. 10% Debentures A/c by ? will be written off by
25,00,000, passing the entry as:
Securities Premium Reserve A/c by (1) Dr. Securities Premium A/c by
1,25,00. and Capital Reserve A/c by ? 2,50,000
(4) Dr. Debentures Application and Allotment A/c Cr. Loss on Issue of 1,10,000;
by 26,25,000 and Discount on Issue of Debentures A/c by
Debentures A/c by 1,25,000; (2) Dr.
73,60,000.
Cr. 10% Debentures A/c by ? Statement of Profit & Loss and
25,00,000, Cr. Loss on Issue of
Securities Premium Reserve A/c by Debentures A/c by
?1,25,000 and Premium on Redemption 73,60,000.
of Debentures A/c by 1,25,000. (3) Dr. Capital Reserve A/c by 1,20,000 and
40. HONEYGEL Ltd. issued 40,000, 9% Debentures of Securities Premium A/c by 2,40,000;
100 each at a discount of 5%. The Cr. Loss on Issue of
company has Debentures A/c by
balance in Securities Premium or Securities 3,60,000.
(4) Dr. Securities
Premium Reserve of ? 2,20,000. Discount on Premium Alc by 2,50,000
Issue of Debentures willbe written off by and
the entry as: passing Statement of Profit & Loss by
71,10,000;
(1) Dr. Statement of Profit & Loss and Cr. LosS on Issue of
Cr. Discount on Issue of
Debentures A/c by 3,60,000.
Debentures A/C Dy
2,00,000. 43.
(2) Dr. Discount on Issue of IS paid before payment of
Debentures Ac and because it is a charge against
Cr. Statement of Profit & Loss by ?
2,00,000. profit of the
(1) Dividendcompany.
(3) Dr. Securities Premium or Securities Premium
Reserve A/c and on Preference Shares;
Interest on
Cr. Discount on ssue of Debentures A/c by
(2)
Debentures
2,00,000. Dividend on Equity Shares:
interest o
(4) Dr. Discount on lssue of Debentures A/c and Debentures
(3) Interest on
Cr. Securities Premium or Securities Premium Debentures: Interest on Bank Lod
Reserve A/c by 2,00,000. (4) Interest on Debentures:
Dividend on Botn
Equity and Preference Shares
 CHAPTER 10. IssUE OF
DEBENTURES 121

On
issue of Debentures as collateral security,
Account is debited and
Account is credited with the
of the Debentures.
Debentures;
Debentures Suspense; amount
of Loan secured by debentures.
(2) Debentures Suspense; Debentures; amount
of Loan secured by debentures
(2 Debentures; Debentures Suspense; Nominal
(Face) Value
14) Debentures Suspense;Debentures; Nominal
(Face) Value
.On 1st April, 2021, HP Ltd. took 10% Bank Loan
of 12,00,000 from Kuber Bank and issued
15,000; 10% Debentures of 100 each as
collateral security. For the year ended 31st March,
022, interest on Debentures paid by the company
would be
(1) 1,50,000. (2) 1,20,000.
(3) 1,35,000. (4) None of the above.
A6. On 1st June, 2021, GE Ltd. took 9% Bank Loan of
7 10,00,000 from RBL Bank and issued 10,000;
10% Debentures of 100 each as collateral
security. For the year ended 31st March, 2022,
Finance Cost in the Statement of Profit & Loss of
the company would be:
(1)90,000. (2) 75,000.
(3) 1,00,000. (4) None of these.
47. If the lender exercises his right to recover the
dues from debentures issued as collateral security,
entry passed besides cancelling for debentures
issued as collateral security, would be:
(1) Dr. Debentures A/c;
Cr. Debentures Suspense Ac.
(2) Dr. Debentures A/c;
Cr. Bank A/c.
(B) Dr. Loan A/c and Outstanding Interest A/c;
Cr. Debentures A/c.
(4) Dr. Debentures A/c;
Cr. Loan A/c and Outstanding Interest A/c.
48. If the amount of interest accrued and due on
debentures is not paid, it is termed as
and classified in the Equityand Liabilities part of
Balance Sheet under the main head
and sub-head
(1) Interest Accrued but not Due;Current Liabilities;
Other Current Liabilities
(2) Interest Outstanding: Current Liabilities;
Other Current Liabilities
(3) Interest Accrued and Due; Other Current
Liabilities; Current Liabilities
(4) Interest Accrued and Due; Non-current
Liabilities: Other Current Liabilities
49. VGS TEXTILES Ltd. issued 30.000: 9% Debentures
of 100 cach on 1st April, 2021. The issue was
fully subscribed. According to the terms of issue,
interest is due on half-yearly basis. As per the
policy of the company it pays the interest on
debentures after a week it becomes due for
payment. As on 31st March, 2022, Interest accrued
and due on Debentures would be
(1) ?1,35,000.
(2) 2,70,000.
(3)67,500.
(4) None of the above.
50. VRS COMMUNICATIONS Ltd. issued 24,000; 10%
Debentures of 100 each on 1st June, 2021. The
issue was fully subscribed. According to the terms
of issue, interest is due on half-yearly basis. As
per the policy of the company it duly pays the
interest. As on 31st March, 2022, Interest accrued
but not due on Debentures would be
(1) 1,20,000.
(2) 80,000.
(3) 40,000.
(4) Nil.
51. At the end of the year, balance in Debentures'
Interest Account is shown as in
(1) Finance Cost; Statement of Profit & Loss
(2) Other Expenses; Statement of Profit & Loss
(3) Finance Cost; Surplus, i.e., Balance in
Statement of Profit & Loss
(4) Other Expenses; Surplus, i.e., Balance in
Statement of Profit & Loss
52. Joy Ltd. invited applications for 30,000, 8%
Debentures of 100each issued at a discount of
5% and redeemable at a premium of 5% after
12 years. The issue price was payable on application.
Applications were received for 40,000 debentures.
Applications for 10,000 debentures were rejected
and application money was refunded. Debentures
were allotted to the remaining applicants. The entry
passed on allotment of Debentures would be:
(1) Dr. Debentures Application and Allotment
A/c by 38,00,000 and Loss on Issue of
Debentures A/c by 3,00,000;
Cr. 8% Debentures A/c by 30,00,000, Premium
on Redemption of Debentures A/c by
? 1,50,000and Bank A/c by 9,50,000.
Allotment
(2) Dr. Debentures Application and
by38,00,000 and Discount on
A/c
by 1,50,000;
Issue of Debentures A/c 30,00,000 and
Alc by
Cr. 8% Debentures
Bank A/c by 9,50,000.
 TestFit CUET(UG)-2022 AccoUNTANCY
122
(2) Dr. Debentures Allotment A/c by ?
(3) Dr. Debentures Application and Allotment
A/c by R 38,00,000 and Loss on Issue of
and Loss on
1,25,000;
Issue of Debentures18,7Al5,c 0by0
Debentures A/c by R3,00,000;
Cr. 10% Debentures A/c by
Cr. 8% Debentures A/c by R 30,00,000,
Securities Premium Reserve A/c by Securities Premium Reserve A/c
71,25,000 and Premium on
17,50,000,
R 1,50,000and Bank A/c by ? 9,50,000.
(4) Dr. Debentures Application and Allotment of Debentures A/c by? 1,25,000.
(3) Dr. Debentures Allotrnent A/c by 18,75 0
Redemption
A/c by 38,00,000 and Loss on Issue of
Debentures A/c by 1,50,000; Cr. 10% Debentures A/c by ? 17,50,000
Cr. 8% Debentures A/c by 30,00,000 and Securities Premium Reserve A/c hy
Bank A/c by 9,50,000. 7 1,25,000.
53. Ace Ltd. issued for subscription to public 2,00,000, (4) Dr. Debentures Allotment A/c by 18,75,000
9% Debentures of 100 each at a discount of 5% and Discount on Issue of Debentures Alr
redeemable at par. The issue price was payable by 1,25,000;
with application. Subscription was received for Cr. 10% Debentures A/c by ? 17,50,000
75% of issued debentures and
application money Securities Premium Reserve A/c by
for the same was
received. 1.25,000 and Premium on Redemption
The application money to be of Debentures A/c by ? 1,25,000.
allotment of debentures will be appropriated on
56. CITRA Ltd. has issued 20,000, 9% Debentures as
(1) 1,33,00,000. a Collateral Security for a Bank Loan and entry has
(2) 1,40,12,500. not been passed in the books of accounts. Whether
(3) ? 1,37,75,000. disclosure is required in the financial statements?
(4) 1,42,50,000. (1) Yes, in the Notes to Accounts
54. VIBRO Ltd. issued 60,000, 9% (2) No, disclosure is not required since
Debentures of has not been passed in the books
entry
100 each at a discount of 6%,
redeemable
premium of 4% after 10 years. The issue price
at a (3) Depends upon the
(4) Debentures shouldmanagement
of the company
was payable in instalments- 30 on be disclosed under Long
and baiance on allotment. The entry application term Borrowings
allotment of Debentures will be: passed on 57.
Gold Spot Ltd. purchased an
(1) Dr. Bank A/c and automated machine
for6,86,000. As per the
is to be made by issuing 8% agreement, the payment
Cr. Debentures Allotment A/c by
(2) Dr. Debentures Allotment A/c by? 38,40,000. each and a bank draft of Debentures of 100
38,40,000 If the
35,000.
and Discount on Issue of debentures are
by 3,60,000;
Debentures A/c the entry passed for issued at a discount of 7%,
Cr. 9% Debentures A/c by will be: allotment of 8% Debentures
(3) Dr. Debentures Allotment A/c
42,00,000. (1) Dr. Machinery A/c by
by38,40,000
and Loss on Issue of Debentures Issue of Debentures6,86,000 and Loss on
A/c by A/c by
6,00,000; Cr. 8% 49,000;
Cr. 9%Debentures A/c by
Debentures A/c by 7,00,000 and
Bank A/c by ? 35,000.
42,00,000 and (2) Dr. Vendor's A/c
Premium on Redemption of Debentures by? 7,35,000;
A/c by 2,40,000. Cr. 8%
(4) Dr. Bank A/c by ? Debentures
Bank A/c by
A/c by 7,00,000 and
38,40,000 and Loss on (3) Dr. 35,000.
Issue of Debentures A/c by ? Vendor's A/c
6,00,000; by6,86,000 and
Cr. 9% Debentures A/c by ?
42,00,000 and on Issue of Debentures Alc by ?Discount
Premium on Redemption of Debentures Cr. 8% 49,000;
A/c by 2,40,000. Debentures A/c by 7,00,000
Bank A/c by 35,000. and
55. CRIC GYAN Ltd. issued (4) Dr. Vendor's by
A/c
25,000, 10% Debentures
of 100 each at apremium of
5%, Issue of Debentures6.86.000
A/c by ?
and Loss on
at premium of 5% after 10 years. Theredeemable Cr. 8% 49,000;
BankDebentures
issue price A/c by 7.00,000 and
was payable in instalmenis-* 30 on
application A/c by 35,000.
58.
and balance on allotment. The entry passed on
allotment of Debentures would be:
CEDARWELL
from Pie Ltd.
Ltd. purchased
running business
(1) Dr. Bank A/c and for7,80,000. ofCEDARWELL Ltd.
issued 8,000, 9%
Debentures 100
Cr. Debentures Allotment A/c by? 18,75,000.
discount and balance by cheque. Sundry each at 5%
sundry liabilities of Pie Ltd. assets ana
were as under:
 CHAPTER 10. IssUE OF DEBENTURES 123
plant and Machinery 3,00,000; Furniture (2) Dr. Pie Ltd. by 7,80,000 and Discount on
; 1.50,000; Sundry Debtors ? 1,80,000: Stock Issue of Debentures A/c by 40,000;
¿4,50,000; Sundry Creditors 2,50.000 Cr. 9% Debentures A/c by 8,00,000 and
The entry passed for allotment of 9% Debentures
would be:
Bank A/c by 20,000.
(1) Dr. Pie Ltd. 7,80,000 and Loss on Issue of (3) Dr. Pie Ltd. by 8,20,000;
Debentures A/c by 40,000: Cr. 9% Debentures A/c by ? 8,00,000 and
Ct 9% Bank A/c by 20,000.
Debentures A/c by 8,00,000 and (4) Dr. Pie Ltd. by 8,20,000;
Bank A/c by 20,000.
Cr. 9% Debentures A/c by 8,20,000.

2. CASE STUDYBASED MCas

1 Havells Ltd. is engaged in the business of electrical 1,20,000 in Capital Reserve Account.
3.
wires. After acquiring the major share in market,. 1,00,000 in Capital Reserve Account.
4.
it received a proposal from one of the Board
C. The entry passed in the books of Havells Ltd.
Members to diversity its business. As per the to pay the purchase price is:
proposal it would require funds for acquiring the
running business of Orient Ltd., who is into the 1. Orient Ltd. ...Dr. 82,00,000
production of Coolers and Fans. Sundry assets Loss on Issue of
and sundry liabilities of Orient Ltd. were as under: Debentures A/c ...Dr. 7,00,000
To 10% Debentures A/c40,00,000
Plant and Machinery 30,00,000; Furniture
715,00,000; Sundry Debtors 18,00,000; Stock To Securities Premium A/c 8,00,000
T45,00,000; Sundry Creditors 25,00,000. To Premium on Redemption
of Debentures A/c 10,00,000
As of now Havells Ltd. is a debt free company and
To Bank A/c 731,00,000
also it had retained earnings of 30,00,000. Finance
Manager of the company advised to incorporate 2. Orient Ltd. ..Dr. 82,00,000
debt in the Capital Structure of the company to Loss on Issue of
increase the Earning Per Share (EPS). It was decided Debentures A/c ...Dr. 9,00,000
that sources of the funds would be retained To 10% Debentures A/c 50,00,000
earnings and balance from the issue of 10% To Securities Premium A/c 10,00,000
Debentures of 100 each at a premium of 20% and To Bank A/c 31,00,000
redeemable after 10 years at 25% premium. 3. Orient Ltd. ...Dr. 82,00,000
On 1st April, 2021, It acquired the business of Loss on Issue of
Orient Ltd. for 82,00,000, out of which Debentures A/c ...Dr. 10,62,500
?31,00,000 was paid by cheque and rest by issue To 10% Debentures A/c 42,50,000
of 10% Debentures. According to the terms of To Securities Premium A/c
issue of debentures, interest is paid annually on
8,50,000
To Premium on Redemption of
31st March, every year. TDS is deducted @ 10%. Debentures A/c 10,62,500
Based on the above information, answer the To Bank A/c 31,00,000
following questions: 4. Orient Ltd. ..Dr. 82,00,000
A 10% Debentures are
Loss on Issue of
0ssued to Orient Ltd, in consideration of Debentures A/c ..Dr. 7 10,20,000
purchase of business.
To 10% Debentures A/c 51,00,000
1. 40,000.
To Securities Premium A/c 10,20,000
2.. 42,500. 31,00,000
To Bank A/c
3. 51,000. D. The entry passed in the books of Havells Ltd.
4. 50,000. to write off Loss on issue of Debentures:
Ltd.,
B. On purchase of business of Orient 7,00,000
there will be a balance of 1. Securities Premium Alc ...Dr.
To Loss on Issue of
1. ?1,20,000 in Goodwill Account. Debentures A/c ?7,00,000
2. ? 1,00,000 in Goodwill Account.
 TestFitCUET(UG)-2022AccOUNTANCY
124 2 Debentures Application and
Z. Securities Premium
A/c ...Dr. 8,50,000 Allotment A/c
Loss on Issue of
..Dr. ?75,00,000
750,000
Capital Reserve A/c ..Dr:.
Debentures A/c ...Dr.
To Loss on Issue of
9,00,000 To 9% Debentures Alc 12,00,000
Debentures A/c
3. Securities Premium /c ...
Statement of
Dr. 8,50,000 To Securities Premium A/c {
To Premium on Redemption
{60,15,00,000,0O000
of Debentures A/c
Profit & Loss
To Loss on Issue of
...Dr. 2,12,500

10,62,500
3. Debentures Application and
Allotment A/c
12,00,000
.Dr. 75,00,000
Debentures A/c To 9% Debentures A/c 7 36,00,000
4. Securities Premium A/c ...Dr. 8,50,000 To Securities Premium A/c
Capital Reserve A/c
Statement of
...Dr. 1,00,000
To Bank A/c 79,00,000
730,00,000
4. Debentures Application and
Profit & Loss ...Dr. 7 70,000
Allotment A/c ..Dr. 75,00,000
To Loss on Issue of Loss on Issue of
Debentures A/c 10,20,000
Debentures A/c ...Dr.
2. Ayush Organics Limited is engaged in manufacture To 9% Debentures A/c
?9,60,000
and trading of organic spices. Considering the Covid 32,00,000
To Securities Premium A/c 8,00,00
situation, the directors of the company got an idea
to prepare Ayush Kwath Powder, which will improve To Premium on Redemption
of Debentures Ac 79,60,000
the immune system internally. They decided to
distribute some of them as free samples in Covid To Bank A/c 35,00,000
Hospitals. They also decided to sell it through online C. At the time of issue of 9% Debentures.
portals so that they can provide immediate relief to Premium Payable on redemption of debentures
Covid affected persons and make them able to fight is accounted at the time of allotment of
debentures by due to
against after effects of this deadly virus.
1. Crediting Premium on Redemption of
For this they would be requiring new Machinery Debentures Account; Prudence Concept.
and Equipment costing around ? 75,00,000. The 2. Debiting Loss on Issue of Debentures
company decided to utilise their existing free Account; Prudence Concept.
reserves of ? 35,00,000 for the same and balance
3. Debiting Premium on Redemption of
can be raised from public by issuing sufficient Debentures Account; Prudence Concept.
number of 9% Debentures at 25% premium. These
4. Crediting Loss on Issue of Debentures
Debentures were to be redeemed at 309% premium Account; Prudence Concept.
at the end of 5 years. Applications for 60,000
D. Loss on issue of Debentures Account is
Debentures were received and pro rata allotment written off by:
was made to all the applicants. 1. Securities
Based on the above information, answer the ...Dr. 8,00,000
Premium A/c
following questions: Statement of
A. Number of 99% Debentures that the Profit & Loss ..Dr. 1,60,000
company
shall isSue is
To Loss on Issue of
1. 40,000. 79,60,000
Debentures A/c
2. 36,000. 2. Statement of
3. 32,000. Profit & Loss ...Dr. 9,60,000
4. 28,000. To Loss on Issue of
B. The entry passed in the books of Ayush 9,60,000
Debentures A/c
Organics Limited to allot 9% Debentures is: 3. Securities
1. Debentures Application and 8,00,000
Premium A/c ...Dr.
Allotment A/c ..Dr. 75,00,000 Capital ..Dr. 1,60,000
To 9% Debentures A/c { 60,00,000 Reserve A/c
To Securities Premium A/c To Loss on Issue of 79,60,000
15,00.000
Debentures A/c
 CHAPTER 10. IssUE OF DEBENTURES 125
4. Securities
A. The entry passed in the books of Cello Ltd.
Premium A/c ...Dr. R3,20,000 on issue of 9% Debentures as collateral
Capital security would be:
Reserve A/c ...Dr. R3,20,000 1. 9% Debentures A/c ...Dr. 10,00,000
Statement of
To Debentures
Profit & Loss ...Dr. ?3,20,000
To Loss on Issue of Suspense A/c 10,00,000
2.. Debentures
Debentures A/c 9,60,000
3. Cello Ltd. is engaged in the manufacturing of
Suspense A/c ...Dr. 8,00,000
stationery items. It wants to diversify its business To 9% Debentures A/c 8,00,000
so it plans to produce some of the 3. 9% Debentures A/c...Dr. 8,00,000
necessary
electronic stationery items as well. It decided to To Debentures
start a small unit for that it would
require some Suspense A/c ?8,00,000
automated machines along with constant supplies 4. Debentures
of raw materials at cheap and
reasonable rates. It Suspense A/c ..Dr. 10,00,000
approached some of electronics raw material
suppliers and entered into the longterm To 9% Debentures A/c 10,00,000
To make some advance payment to its contracts. B. The purchase consideration to Flair Ltd.
It took 9% Loan of suppliers, would be
8,00,000 from SBI and Issued
10,000, 9% Debentures of? 100 each as collateral 1. 15,00,000.
security on 1st April, 2021. 2. 13,50,000.
And also, it took over running business of Flair 3. 12,00,000.
Ltd. comprising of following assets and liabilities 4. 12,50,000.
on 1st April, 2021:
Particulars
C. On purchase of business of Flair Ltd., there
Book Value () Agreed Value ()
Business Premises will be a balance of
5,00,000 8,.00,000
Plant and Equipment 1. 1,30,000 in Goodwill Account.
4,00,000 3,00,000
Fixtures and Fittings 2,00,000
2. 1,00,000 in Goodwill Account.
2,00,000
Inventories 1,00,000 1,40,000 3. 1,30,000 in Capital Reserve Account.
Trade Receivables 1,20,000 1,00,000 4. 1,00,000 in Capital Reserve Account.
Trade Payables 60,000 60,000 D. The Finance Costs as per Statement of Profit
The payment to Flair Ltd. was made by issuing & Loss of Cello Ltd. for the year
ended
15,000, 12% Debentures of 100 each at 10% 31st March, 2022 would be
discount, to be redeemed at 20% premium at 1. 5,90,000.
the end of five years. 2.7,02,000.
Based on the above information, answer the 3.5,72,000.
following questions: 4. 2,52,000.

3. SEQUENCE BASED McOs

1. The correct order or sequence in which,
Discount A. Bank A/c
or Loss on Issue of Debentures is written off at ...Dr.
the end of the year is: To
Debenture Allotment A/c
A. Statement of Profit & Loss B. Debenture Allotment A/c
...Dr.
B. Capital Reserve To Debentures A/c
C.
Securities Premium Reserve C.
D. General Reserve.
Debenture Application A/c ...Dr.
To Debentures A/c
Choose the correct option: D. Bank A/c
1. A, B and D ...Dr.

2. B, A and D To Debenture Application A/c

3. Cand A Choose the correct option:
4. C, B and A 1. D, C, B and A
Z. If debenture amount is received in two 2. C. A, B and D
instalments, the correct order or sequence of 3. C, B, A and D
Journal entries is: 4. B, C, Aand D
 TestFit CUET(UGJ-2022AccoUNTANCY
126 C. Debentureholders A/c
lournal entries for interest To Bank A/c
3. The correct order of
on debentures is: D. Statement of Profit & Loss
...Dr. To Debenture Interest A/C
A. Income lax Payable A/c
To Bank A/c Choose the correct option:
..Dr. A 2. C, A, B and D
8. Debenture Interest A/c 1. D, C, B and
To Incone Tax Payable A/c 4. B, C, D and A
3. A, B, Cand D
To Debentureholders A/c

4. MATCHING QUESTIONS
Choose the correct option:
1. Match entries (items) in List | in entries (items) 1. A-!and B-I 2. A-|| and B
in List IL. 4. A-I|l and B-V
3. A-Iland B-|||
List I List Il
A. Debentures which are almost I. Registered Debentures 4. Match the following items:
risk free. List I List Il
II. Redeemable Debentures than I. Goodwill
A. Purchase consideration is less
B. Debentures that are not repay
able during the life of the net worth
company.
B. Debentures reissued at value more I. Capital Reserve
C. Debentures that are not IlI. Secured Debentures than the nominal (face) value
convertible into shares or C. Purchase consideration is more III. Securities Premium
new debentures.
than net worth
D. Debenturesin this case IV, Non-convertible Debentures
require the execution of a Choose the correct option:
transfer deeds. 1. A-lI, B-l andC-||
E. Debentures that are repayable V. Perpetua! Debentures 2. A-121.3.1, B-l| and C-l
by the company on maturity. 3. A-||L, B-I and C-l
Choose the correct option: 4. A-l, B-||and C-I|
1. A-ll, B-V, C-IV, D-ll andE-I
5. Match the following items:
2. A-I|I, B-V, C-IV, D-l and E-I
List I List II
3. A-|I, B-V, C-I, D-|Vand E-ll
A. X Ltd. took over assets of I. Capital Reserve of
4. A-l||, B-IV, C-V, D-l and E-I|
7 8,00,000 and acquired 1,00,000
2. Match the entries (items) in List Iwith entries liabilities of 1,50,000 from
(items) in List I1: YLtd. for 7,50,000. Balancing
amount is
List I List II
8. M Ltd. acquired assets of II. Goodwill of 1,00,000
A. Redeemable and Irredeemable Debentures I. Registration
?25,00,000 and Liabilities of
B. Convertible and Non-convertible Debentures I|. Security
24,00,000 from NLtd. Balancing
C. Registered and Bearer Debentures ||i. Redemption amount is
D. Secured and Unsecured Debentures IV. Convertibility C. Z Ltd. acauired assets of I. Purchase Consideration
Choose the correct option: ? 12,00,000 and
?
liabilities of of 1,00,000
1. A-l|, B-IV, C-I| and D 3,00,000 of B Ltd for
2. A-|||, B-I, C-IV and D-|I 8,00,000. Balancing amount is
3. A-I|L, B-I|, C-I and D-IV Choose the correct option:
4. A-l|I, B-IV, C-I and D-|| 1. A-l|, B-I and C-Il|
3. Match the entries (items) in List I with entries 2. A-l, B-||| and C-I
(items) in List l: 3. A-I||, B-I and C-I|
List I List l! 4. A-1, B-|| and C-I1
A. A Company can issue Debentures for 6. Match the
I. Considering other
than cash
following items:
List | List i!
B. When Debentures are issued as I. Cash
A. Zongo Ltd. issued 13% |. 60.000 debentures
subsidiary or secondary or additional
of ? 50 at a premium Debentures
of 20% tor
security besides the primary security
purchase of Motor Vehicles of
II. Both l and I| ?24,00,000. Number of
IV. Collateral Security issued to vendors are debentures
 127
CHAPTER 10. IssUE OF DEBENTURES
B. Cecil Ltd. issued 13% Debentures Choose the correct option:
I. 24,000 debentures
of 50 at a Discount of 20% for
purchase of Motor Vehicles of
1. A-| and B-I
?24,00,000. Number of debentures 2. A-| and B-IV
issued to vendors are
I. 50,000 debentures 3. A-|l and B-I
IV, 40,000 debentures 4. A-IV and B-|

5. CoMBINATION WITH SINGLE ANSWER QUESTIONS

1. Which of the following statements is/are incorrect? 4. Which of the following statements is/are incorrect?
A. A company cannot issue irredeemable A. Debenture interest is a charge against profits.
debentures. B. Debenture cannot be forfeited for non
B. A company cannot purchase its OWn payment of call money.
debentures for investment purpose. C. It is customary to prefix 'Debentures' with
C. A company cannot issue debentures with the agreed rate of interest.
voting rights. D. The issue price and redeemable price of a
D. A company cannot make preferential allotment debenture cannot differ.
of debentures.
Choose the correct option:
Choose the correct option: 1. Aand B only
1. Aand B only 2. B and Conly
2. B and Conly 3. Aand Conly
3. A and C only
4. B and Donly
4. Band Donly
5. Depending upon the terms and conditions of
2. Which of the following statements is/are false? issue and redemption of debentures, which of
A. A company can issue unsecured debentures. the following situations are commonly found in
B. When company issues debentures as collateral practice:
security, liability on account of Debentures A. Issued at par and redeemable at discount
is created at the time of issue of Debentures. B. Issued at discount and redeemable at discount
C. Acompany cannot issue debentures with C. Issued at apremium and redeemable at par
voting rights. D. Issued at par and redeemable at a premiumn
D. Interest on Debentures is payable on nominal
Choose the correct option:
(face) value of Debentures.
1. A and B only
Choose the correct option: 2. Band Conly
1. A and C only 3. A and Conly
2. B only 4. C and D only
3. B and C only
4. D only
6. Depending upon the terms and conditions of
issue and redemption of debentures, which of
3. Which of the following statements is/are correct? the following situations are not possible:
A. Zero-Coupon Bond is a debt security instrument.
A. Issued at par and redeemable at discount
B. It carries zero rate of interest.
B. Issued at discount and redeemable at par.
C. It is sold by the issuing company at Premium.
D. Interest on Debentures is payable on nominal C. Issued at a premium and redeemable at
(face) value of Debentures. premium
D. Issued at par and redeemable at a premium
Choose the correct option:
Choose the correct option:
1. A and B only
1. A only
2. B and C only
2. B and C only
3. A and Coniy
3. A and Conly
4. A, 3and D only
4. Conly
128 TestFit CUET(UG)-2022 AccOUNTANCY

ANSWERS
1. MULTIPLE CHOICE QUESTIONS
1. (3) 2. (4) 3. (3) 6. (4) 7. (3) 8. (2)
4. (2) 5. (4) 9. (2)
11. (1) 12. (3) 13. (2)
10. (3)
14. (4) 15. (3) 16. (2) 17. (1) 18. (4) 19. (3) 20. (2)
21. (2) 22.. (3) 23. (4) 24. (3) 27. (2)
25. (2) 26. (1) 28. (2) 29. (1) 30. (3)
31. (2) 32. (3) 33. (4) 34. (2) 35. (4) 36. (2) 37. (4) 38. (3) 39. (2) 40. (3)
41. (2) 42. (4) 43. (4) 44. (4) 45. (4) 46. (2) 47. (3) 48. (2) 49. (1) 50. (2)
51. (1) 52. (1) 53. (4) 54. (3) 55. (2) 56. (4) 57. (3) 58. (2)
2. CASE STUDY BASED MCOS
1. A. 2 B, 4 C. 3 D. 3
2. A. 3
B. 4 C. 2
3. A. 4
D. 1
B. 2 C. 3 D. 3
3. SEQUENCE BASED MCQS
1. 3 2. 1 3. 4
4. MATCHING QUESTIONS
1. 2 2. 4 3. 4 4. 2 5. 2 6. 4
5. COMBINATIONWITH SINGLE ANSWER QUESTIONS
1. 4 2. 2 3. 4 4. 4 5. 4 6. 1

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