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Question
Select the correct statement from the following options.
Options
A debenture holder is entitled to receive a dividend on his debentures from the company even if the company has incurred losses.
A debenture holder is entitled to receive interest on his debentures from the company only if the company has made profits.
A debenture holder is entitled to receive interest on his debentures from the company only after a dividend has been paid by the company to its shareholders.
A debenture holder is entitled to receive interest on his debentures from the company even if the company has incurred losses.
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Solution
A debenture holder is entitled to receive interest on his debentures from the company even if the company has incurred losses.
Explanation:
Debenture holders are entitled to interest on their debentures. The interest will be calculated using the face value of the debentures and levied against profits. The interest is paid to debenture holders before any dividends are given to shareholders, and it is produced even in the event of a loss.
RELATED QUESTIONS
On 1st April, 2014, KK Ltd. invited applications for issuing 5,000 10% debentures of Rs 1,000 each at a discount of 6%. These debentures were repayable at the end of 3rd year at a premium of 10%. Applications for 6,000 debentures were received and the debentures were allotted on pro-rata basis to all the applicants. Excess money received with applications was refunded.
The directors decided to transfer the minimum amount to Debenture Redemption Reserve on 31.3.2016. On 1.4.2016, the company invested the necessary amount in 9% bank fixed deposit as per the provisions of the Companies Act, 2013. Tax was deducted at source by bank on interest @10% p.a.
Pass the necessary journal entries for issue and redemption of debentures. Ignore entries relating to writing off loss on issue of debentures and interest paid on debentures.
Raj Motors Ltd. converted its 400, 12% debentures of Rs 100 each issued at a discount of 6% into equity shares of Rs 10 each issued at a premium of 25%. Discount on issue of 12% debentures had not yet been written off.
Showing your working notes clearly, pass necessary journal entries for the above transactions in the books of Raj Motors Ltd.
On 1.4.2015, GGY Ltd. issued 3000, 9% debentures of Rs 100 each at a discount of 6%, redeemable at a premium of 10% after five years. The company closes its books on 31st March every year. Interest on 9% debentures is payable on 30th September and 31st March. Rate of tax deducted at source is 10%.
Pass necessary journal entries for the issue of 9% debentures and interest for the year ended 31st March, 2016.
Pass necessary journal entries on dissolution of a firm in the following cases:
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(iii) Sudha, a partner, agreed to do the dissolution work for a commission of Rs 7,300. She also agreed to bear the dissolution expenses. Actual dissolution expenses paid by Sudha were Rs 7,500.
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(v) Sheetal, a partner, was appointed to look after the dissolution work for a remuneration of Rs 8,000. She also agreed to bear the dissolution expenses. Actual dssolution expenses Rs 7,500 were paid by Smita, another partner, on behalf of Sheetal.
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Vishesh Ltd. issued 10,000, 10% Debentures of Rs 100 each on 1st April, 2012. The issue was fully subscribed. According to the terms of issue, interest on debentures is payable half-yearly on 30th September and 31st March and tax deducted at source is 10%.
Pass the necessary journal entries related to the debentures interest for the half-yearly ending on 31st March, 2013 and transfer of interest on debentures for the year to Statement of Profit and Loss.
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Answer in a sentence only.
What do you mean by ‘Debenture Interest’?
A. Ltd. issued 10,000, 10% Debentures of Rs 100 each at a premium of 5% payable as follows:
Rs 10 on Application;
Rs 20 along with premium on allotment and balance on First and Final call. The debentures were fully subscribed, and all money was duly received. Record necessary Journal entries. Also, show how the amount will appear in the balance sheet.
T. Ltd. offered 2,00,000, 8% debenture of Rs 500 each on June 30, 2014 at a premium of 10% payable as Rs 200 on application (including premium) and balance on allotment, redeemable at par after 8 years. But application are received for 3,00,000 debentures and the allotment is made on pro-rata basis. All the money due on application and allotment is received. Record necessary entries regarding issue of debentures.
X. Ltd. issued 15,000, 10% debentures of Rs. 100 each. Give journal entries and the Balance Sheet in each of the following cases:
(i) The debentures are issued at a premium of 10%;
(ii) The debentures are issued at a discount of 5%;
(iii) The debentures are issued as collateral security to the bank against a loan of Rs. 12,00,000; and
(iv) The debentures are issued to a supplier of machinery costing Rs. 13,50,000.
