Assertion Reason MCQs of Issue of Debentures class 12 with answers
Assertion Reason MCQs of Issue of Debentures class 12 with answers
Let’s Practice
Assertion (A): Debenture Certificate evidences that the company has borrowed amount from the Debentureholder.
Reason (R): Debenture is the written acknowledgment by a company of debt.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(C) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect
Ans – (b)
Assertion (A): Debentures can be issued at discount whereas shares cannot be issued at discount to public.
Reason (R): The Companies Act, 2013 does not allow issue of shares at discount unless they are issued as ESOPs. It does not restrict issue of Debentures at discount.
Options:
(a) Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
(c) Only Assertion (A) is correct
(d) Both Assertion (A) and Reason (R) are incorrect
Ans – (b)
Assertion (A): Debentures can be issued at a discount of more than 10% of the face value.
Reason (R): There are no restrictions on the issue of debentures at discount.
Options:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (A) is correct
(d) Both (A) and (R) are wrong
Ans – (a)
Assertion (A): Debentures can not be issued at discount whereas shares can be issued at discount.
Reason (R): The Companies Act, 2013 does not allow issue of shares at discount unless they are issued as ESOPs. It does not restrict issue of debentures at discount.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(c) Assertion (A) is incorrect, but Reason (R) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.
Ans – c)
Assertion (A): Debenture is a part of ownership capital. As such, a company can issue debentures with voting rights.
Reason (R): Debenturehoders are not members of the company.
Options:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (R) is correct
(d) Both (A) and (R) are wrong
Ans – (c)
Assertion (A): When debentures are redeemable at premium, premium payable on redemption is debited to ‘Loss on Issue of Debentures Account’.
Reason (R): Premium on redemption is a liability of a company payable in future.
Options:
(a) Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
(c) Only Assertion (A) is correct
(d) Both Assertion (A) and Reason (R) are incorrect
Ans – (a)
Assertion (A): Application Money on debentures issued may be collected in lumpusm or in instalments as is decided by the company.
Reason (R): Application Money received in lumpsum is credited to Debentures Application and Allotment Account whereas application money received when issue price of debentures is received in instalments is credited to Debentures Application Account.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(C) Only Assertion (A) is correct.
(D) Both Assertion (A) and Reason (R) are incorrect.
Ans – (a)
Assertion (A): Interest on debentures is payable whether the company earns profits or incurs loss.
Reason (R): Interest on debentures is a charge against the profits of the company.
Options:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (A) is correct
(d) Both (A) and (R) are wrong
Ans – (a)
Assertion (A): A company has issued 1,00,000, 8% Debentures of ₹ 200 each to a bank as collateral security. It may or may not record it in the books of account by passing a Journal entry.
Reason (R): Journal entry passed by the company will be:
Debenture Suspense A/c Dr. ₹ 2,00,00,000
To 8% Debentures A/c ₹ 2,00,00,000
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A)
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.
Ans – a)
Assertion (A): A zero coupon bond is issued at zero rate of interest.
Reason (R): In case of zero coupon bond the difference between issue price and the redemption price represents the total interest.
Options:
(a) Both (A) and (R) are true and (R) is the correct reason of (A)
(b) Both (A) and (R) are true but (R) is not the correct reason of (A)
(c) Both (A) and (R) are false
(d) (A) is false, but (R) is true
Ans – (d)
Assertion (A): Debentures may be issued at par or at premium but cannot be issued at a discount.
Reason (R): Debentures are borrowings of the company and borrowing cannot be at a discount.
Options:
(a) Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
(c) Only Assertion (A) is correct
(d) Both Assertion (A) and Reason (R) are incorrect
Ans – (d)
Assertion (A): While preparing the Balance Sheet as at 31st March, 2025, if ₹ 5,00,000, 10% debentures are redeemable on 31st October 2025, they will be shown under main head ‘Current Liabilities’ and sub-head ‘Other Current Liabilities’ as ‘Current Maturities or long-term Debts’.
Reason (R): Debentures becoming due for redemption within 12 months from the date of Balance Sheet are shown as Current Maturities of Long-term Debts under the main head Current Liabilities.
Options:-
(a) Both (A) and (R) are true and (R) is not the correct reason of (A)
(b) Both (A) and (R) are correct and (R) is the correct reason of (A)
(c) Both (A) and (R) are false
(d) (A) is false, but (R) is true
Ans – (b)
Assertion (A): Discount or Loss on issue of Debentures is written off in the year debentures are allotted.
Reason (R): Discount or Loss on Issue of Debentures is written off in the year debentures are allotted from Securities Premium (if it exists0 and/or from Statement of Profit & Loss as finance cost.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.
Ans – a)
Assertion (A): Premium on issue of debentures is a capital gain for the company.
Reason (R): Loss on issue of debentures is a revenue loss.
Options:
(a) (A) is correct, but (R) is wrong.
(b) Both (A) and (R) are correct
(c) (A) is wrong, but (R) is correct
(d) Both (A) and (R) are wrong
Ans – (a)
Assertion (A): Paras Ltd. purchased business of Glamour Ltd. for ₹ 10,15,000 and paid by issue of 9% Debentures of ₹ 100 each at a discount of 5% Glamour Ltd. will be issued 10,684.21 debentures
Reason (R): Debentures cannot be issued in fractions hence, 10,685 debentures will be issued.
Options:
(a) Assertion (A) and Reason (R) are correct but Reason (R) is not the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
(c) Only Assertion (A) is correct
(d) Both Assertion (A) and Reason (R) are incorrect
Ans – (d)
Assertion (A): Debentures may have fixed or floating charge on the assets of the company.
Reason (R): Fixed charge denies the company from dealing with mortgaged assets, whereas the floating charge does not prevent the company from using the assets.
Options:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (R) is correct
(d) Both (A) and (R) are wrong
Ans – (a)
Assertion (A): Interest on Debentures is payable to Debentureholder by the company whether the company earns profit or incurs loss.
Reason (R): Interest on Debentures is an expense, i.e., charge against profit to be paid irrespective of the fact that the company has incurred loss.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.
Ans – b)
Assertion (A): As per terms of issue, debentures may be redeemed at par, at premium or at a discount.
Reason (R): Premium on redemption of debentures is shown under Security Premium in the Balance Sheet.
Options:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (R) is correct
(d) (A) is true and (R) is false
Ans – (d)
Assertion (A): Alok Ltd. issued 1,000, 9% Debentures of ₹ 1,000 each at a premium of 25%. 9% Debentures Account will be credited by ₹ 10,00,000.
Reason (R): Debentures Account is credited by the amount received for the debentures issued. Hence Debentures Account will be credited by ₹ 12,50,000.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.
Ans – c)
Assertion (A): Premium on Redemption of Debentures is a Personal Account.
Reason (R): It appears under the head ‘Non Current Liabilities’ under sub-head ‘Other Long-term Liabilities’.
(a) Both (A) and (R) are true but (R) is not the correct reason of (A)
(b) Both (A) and (R) are true and (R) is the correct reason of (A)
(c) Both (A) and (R) are false
(d) (A) is false, but (R) is true
Ans – (d)
Assertion (A): Interest is paid by the company on Debentures issued as Collateral Security.
Reason (R): Interest is paid by the company on Debentures, including debentures issued as collateral security.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Both Assertion (A) and Reason (R) are incorrect.
Ans – d)
Assertion (A): Interest on debentures issued as a collateral security is paid on nominal value of debentures.
Reason (R): Interest on such debentures is paid quarterly, half-yearly or yearly as per the terms of issue.
Options:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (A) is correct
(d) Both (A) and (R) are wrong
Ans – (d)
Assertion (A): Pilot Pens Ltd. issued 10,000, 7% Debentures of ₹ 100 each at par redeemable at a premium of ₹ 6 after 5 years. It has balance in Securities Premium of ₹ 20,000 and ₹ 10,000 in Capital Reserve Account. It will write off balance Loss on Issue of Debentures of ₹ 40,000 from Surplus, i.e., Balance in Statement of Profit & Loss.
Reason (R): Balance Loss on Issue of Debentures, i.e., ₹ 40,000 will be written off from Statement of Profit & Loss.
In the context of above statements, which of the following is correct?
(a) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
(c) Only Assertion (A) is correct.
(d) Assertion (A) is not correct, but Reason (R) is correct.
Ans – d)
Assertion (A): Security Premium received on issue of debentures may be utilised for writing off capital losses, such as discount on issue, premium on redemption, preliminary expenses and for declaration of dividend.
Reason (R): Security Premium may be used for issue of fully paid bonus shares.
Options:
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) Only (R) is correct
(d) Both (A) and (R) are wrong
Ans – (c)
Explanation:-
The Assertion is false and Reason is true
Security Premium received on issue of debentures** is governed by Section 52 of the Companies Act, 2013. According to this, the Security Premium can be utilized for specific purposes, such as:
- Writing off discount on issue of shares or debentures.
- Writing off premium on redemption of shares or debentures.
- Writing off preliminary expenses incurred while forming the company.
- Issuing bonus shares to shareholders.
- Purchasing its own shares or other securities (buyback).
However, it cannot be used for the declaration of dividend, as dividends must be paid out of the company’s profits and not from capital reserves like security premium.
Statement I: As per the Companies Act 2013, no company (engaged in any project) is allowed to issue debentures having a maturity date of more than 10 years.
Statement II: A company engaged in infrastructure projects can issue debentures for a maturity period more than 10 years but no exceeding 30 years.
Options:
(a) Both Statement I and Statement II are correct.
(b) Both Statement I and Statement II are incorrect.
(c) Statement I is correct but Statement II is incorrect
(d) Statement I is incorrect but Statement II is correct
Ans – (d)
Explanation:-
The Statement I is false and Statement II is true
As per the Companies Act, 2013, the general rule is that companies cannot issue debentures with a maturity period of more than 10 years. However, there is an exception for certain companies engaged in infrastructure projects or specific sectors notified by the government. These companies are allowed to issue debentures with a maturity period exceeding 10 years, subject to compliance with applicable rules and regulations.
Assertion (A): Irredeemable debentures are also known as perpetual debentures.
Reason (R): The company does not give any undertaking for the repayment of money borrowed by issuing such debentures. They are repayable on the winding up of the company.
Options:-
(a) Both (A) and (R) are correct and (R) is the correct reason of (A)
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A)
(c) (A) is incorrect, but (R) is correct
(d) (A) is correct, but (R) is incorrect
Ans – (a)
Explanation:- Irredeemable debentures are indeed referred to as perpetual debentures because they do not have a specific maturity date for redemption. The holders of these debentures receive interest indefinitely until the company decides to redeem them, which typically occurs under specific terms or circumstances. However, it’s worth noting that irredeemable debentures are not commonly issued in modern financial markets due to legal restrictions in many jurisdictions, including India.
