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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.
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:
(i) Dissolution expenses were Rs 4,500.
(ii) Dissolution expenses Rs 5,000 were paid by a partner, Sudhir.
(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.
(iv) Somesh, a partner, agreed to do the dissolution work for a commission of Rs 5,000. He also agreed to bear the dissolution expenses. Actual dissolution expenses Rs 4,750 were paid from the firm's bank account.
(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.
(vi) Somaya, a partner, was appointed to look after the dissolution process for a remuneration of Rs 11,000. Somaya agreed to bear the dissolution expenses. Somaya took over stock of the same value as her remuneration. The stock had already been transferred to realisation account.
Pass necessary journal entries in the following cases:
Kim India Ltd. converted 1,000, 9% debentures of Rs 100 each issued at a discount of 10% into equity shares of Rs 100 each issued at a premium of 25%.
State to whether the following statement is True/False.
The rate of interest on debentures is attached to the debenture
Y.Ltd. issued 2,000, 6% Debentures of Rs 100 each payable as follows: Rs 25 on application; Rs 50 on allotment and Rs 25 on First and Final call.
R.Ltd. offered 20,00,000, 10% Debenture of Rs 200 each at a discount of 7% redeemable at premium of 8% after 9 years. Record necessary entries in the books of R. Ltd.
Which of the following statements is incorrect about debentures?
