Class 12 Accountancy Important Chapter 6 Issue and Redemption of Debentures

Class 12 Accountancy Important Chapter 6 Issue and Redemption of Debentures Solutions English Medium As Per The New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Accountancy Important Solutions in English Medium and select need one. AHSEC Class 12 Accountancy Additional Notes English Medium Download PDF. HS 2nd Year Accountancy Additional Solutions English Medium.

Class 12 Accountancy Important Chapter 6 Issue and Redemption of Debentures

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Issue and Redemption of Debentures

Chapter: 6

Part B: Company Accounts and Analysis of Financial Statements

IMPORTANT QUESTION AND ANSWER

Answer The Following Question:

1. Why do companies issue debentures in addition to shares?

Ans: Companies issue debentures in addition to shares to raise long-term borrowed funds, especially when the capital collected from shares is insufficient for their financial needs. Debentures provide an alternative means to raise debt capital for expansion and other business requirements.

2. What is the main difference between interest on debentures and dividend on shares?

Ans: Interest on debentures is a fixed charge paid irrespective of pofits, while dividends on shares depend on company profits and are not mandatory every year.

3. What is meant by a floating charge in relation to debentures?

Ans: A floating charge is a general charge on all or most of a company’s assets, which allows the company to use the assets until the charge becomes fixed, usually upon default.

4. Why are debentures considered less risky than shares for investors?

Ans: Debentures are less risky because they offer fixed interest and priority of repayment over shareholders in case of company liquidation.

5. What is meant by ‘deep discount’ debentures?

Ans: Deep discount debentures are issued at a price much lower than their face value and do not carry a regular interest; the gain comes from redemption at par.

6. How are bearer debentures different from registered debentures?

Ans: Bearer debentures can be transferred by delivery without any record, while registered debentures require formal transfer and registration in the company’s records.

7. What is the purpose of a sinking fund in relation to debentures?

Ans: A sinking fund is set up by companies to accumulate money over time to ensure the timely redemption of debentures at maturity.

8. What does it mean if debentures are redeemable at a premium?

Ans: It means the company will pay an amount higher than the face value to debenture holders at the time of redemption.

9. How is discount on issue of debentures written off in accounts?

Ans: The discount is written off over the life of the debentures, usually from securities premium reserve or profit and loss account.

10. Why do companies sometimes issue debentures as collateral security?

Ans: Companies issue debentures as collateral security to provide additional assurance to lenders when obtaining loans, in case the primary security is insufficient.

Fill in the Blanks:

1. The word ‘debenture’ has been derived from a Latin word ‘______’ which means to borrow.

Ans: Debere.

2. Debenture is a written instrument acknowledging a ______ under the common seal of the company.

Ans: Debt.

3. The return on shares is called ______ while the return on debentures is called ______.

Ans: Dividend, Interest.

4. Shareholders enjoy ______ rights whereas debentureholders do not normally enjoy any such right.

Ans: Voting.

5. Debentures which are convertible into equity shares or other securities are called ______ debentures.

Ans: Convertible.