CUET UG Accountancy Booster Test 3 Issue of Debentures -

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CUET UG Accountancy Booster Test 1 Issue of Debentures

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 1 Issue of Debentures

1 / 20

QUESTION 1 OF 20

📄 Passage

When the number of debentures applied for is more than the number of debentures offered to the public, the issue is said to be over subscribed. A company, however, cannot allot more debentures than it has invited for subscription. The excess money received on over subscription may, however, be retained for adjustment towards allotment and the respective calls to be made. But the money received from applicants to whom no debentures have been allotted, will be refunded to them.

According to the passage, an issue is definitively over-subscribed when:

Answer Review

📄 Passage

According to the passage, an issue is definitively over-subscribed when:

A Debentures allotted are more than applied

B The number of debentures applied for is more than offered

C The company issues debentures at a premium

D Money is refunded to all applicants

💡 Short Explanation

Over-subscription occurs when demand exceeds supply. Applications received exceed debentures offered. Company cannot allot beyond issued quantity.

✅ Correct Answer Explanation

Over-subscription means that the total number of debentures applied for by investors exceeds the number of debentures offered by the company to the public. Therefore, option B is correct. Option A is incorrect because allotment cannot exceed applications. Option C relates to issue at premium, not over-subscription. Option D refers only to refund treatment and not the definition of over-subscription.

❓ Why Other Options Are Incorrect

Option A → A company cannot allot more debentures than applied for.
Option C → Premium issue is unrelated to over-subscription.
Option D → Refund is only a consequence for rejected applicants.

🎯 Strategy

Used

Elimination

Application:

�� Eliminate options unrelated to the definition of over-subscription.

Final Logic:

�� Over-subscription exists when applications exceed the offered amount.

🧠 Memory Trick

"More Applied = Over-supplied"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Over Subscription – Page X

📄 Passage

What must the company do with the money received from applicants who are given zero debentures?

A Retain it for future issues

B Forfeit it

C Transfer it to Securities Premium

D Refund it to them

💡 Short Explanation

No allotment means no liability exists. Excess money cannot be retained illegally. Refund is compulsory for rejected applicants.

✅ Correct Answer Explanation

When applicants receive no debentures, the company has no right to retain their application money. Hence, the amount must be refunded. Therefore, option D is correct. Option A is wrong because money cannot be retained without allotment. Option B is incorrect because forfeiture applies to unpaid calls, not rejected applications. Option C is unrelated to application refunds.

❓ Why Other Options Are Incorrect

Option A → Companies cannot use rejected applicants' funds.
Option B → Forfeiture applies in different situations.
Option C → Securities Premium arises only during premium issue.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Match the refund requirement directly from the passage wording.

Final Logic:

�� No allotment automatically requires refund of money.

🧠 Memory Trick

"No Shares, Money Returns"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Refund Process – Page X

3 Consider the following statements regarding the prospectus and application:
I. Intending investors apply based on the prospectus.
II. The prospectus allows the company to allot more debentures than invited.
Which is correct?

A Only I is correct

B Only II is correct

C Both I and II are correct

D Neither I nor II is correct

💡 Short Explanation

Prospectus invites applications. Companies cannot exceed offered debentures. Statement II violates legal limits.

✅ Correct Answer Explanation

Statement I is correct because investors apply for debentures based on information provided in the prospectus. Statement II is incorrect because a company cannot allot more debentures than invited for subscription. Hence, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement II is false.
Option C → Both statements are not correct.
Option D → Statement I is definitely true.

🎯 Strategy

Used

Elimination

Application:

�� Remove options containing incorrect Statement II.

Final Logic:

�� Only Statement I matches accounting principles.

🧠 Memory Trick

"Prospectus Invites, Not Over-allots"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Prospectus Issue – Page X

4 Arrange the sequence of the standard application process:
1. Investors apply based on the prospectus
2. Company issues prospectus
3. Money is transferred to Debentures A/c on allotment

A 1 -> 2 -> 3

B 3 -> 2 -> 1

C 2 -> 1 -> 3

D 1 -> 3 -> 2

💡 Short Explanation

Prospectus is issued first. Investors apply next. Allotment accounting occurs later.

✅ Correct Answer Explanation

The company first issues the prospectus inviting subscriptions. Investors then apply for debentures. After allotment, money is transferred to Debentures A/c. Therefore, the correct order is 2 → 1 → 3.

❓ Why Other Options Are Incorrect

Option A → Application cannot precede prospectus.
Option B → Allotment cannot occur first.
Option D → Prospectus must be issued before applications.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Use logical business sequence.

Final Logic:

�� Invitation always comes before application and allotment.

🧠 Memory Trick

"Prospectus → Apply → Allot"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Application Process – Page X

5 Assertion (A): If the whole amount is received in one instalment, the account credited is Debenture Application & Allotment A/c.
Reason (R): Application and allotment stages are combined when money is paid in a lump sum.

A Both A and R are false

B Both A and R are true and R is the correct explanation

C A is true, R is false

D A is false, R is true

💡 Short Explanation

Lump sum combines stages. Combined account is maintained. Reason correctly explains assertion.

✅ Correct Answer Explanation

When debenture money is collected in one instalment, application and allotment stages merge into a combined account called Debenture Application & Allotment A/c. Therefore, both Assertion and Reason are true, and Reason correctly explains Assertion.

❓ Why Other Options Are Incorrect

Option A → Both statements are actually correct.
Option C → Reason is not false.
Option D → Assertion is also true.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Verify logical relation between assertion and reason.

Final Logic:

�� Combined payment naturally combines accounting stages.

🧠 Memory Trick

"One Payment = One Combined A/c"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Lump Sum Payment – Page X

6 Which entry correctly denotes when application money is adjusted on allotment for an instalment issue?

A Bank A/c Dr. To Debenture Allotment

B Debentures A/c Dr. To Bank A/c

C Debenture Allotment A/c Dr. To Bank A/c

D Debenture Application A/c Dr. To Debentures A/c

💡 Short Explanation

Application money is transferred. Liability shifts to Debentures A/c. Adjustment occurs after allotment.

✅ Correct Answer Explanation

When application money is adjusted on allotment, Debenture Application A/c is debited and Debentures A/c is credited. This transfers the application amount into debenture capital. Hence, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Represents receipt of allotment money.
Option B → Incorrect treatment.
Option C → Indicates payment instead of adjustment.

🎯 Strategy

Used

Elimination

Application:

�� Identify entry involving transfer from application stage.

Final Logic:

�� Application money must move from Application A/c to Debentures A/c.

🧠 Memory Trick

"Application Ends in Debentures"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Instalment Payment – Page X

7 For 9,000 debentures of Rs. 100 issued at par, what is the exact formula/entry to record the final receipt of allotment money (assuming Rs. 70 was due on allotment)?

A Bank A/c Dr. 6,30,000 To 12% Debenture Allotment A/c 6,30,000

B Debenture Allotment A/c Dr. 6,30,000 To Bank A/c 6,30,000

C Bank A/c Dr. 2,70,000 To 12% Debenture App A/c 2,70,000

D Bank A/c Dr. 9,00,000 To Debentures A/c 9,00,000

💡 Short Explanation

Allotment due = 9,000 × 70. Cash received debits Bank. Allotment liability is credited.

✅ Correct Answer Explanation

Allotment money due = 9,000 × Rs. 70 = Rs. 6,30,000. On receipt of allotment money, Bank A/c is debited and Debenture Allotment A/c is credited. Hence, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Entry is reversed.
Option C → Uses wrong amount and account.
Option D → Represents total issue, not allotment receipt.

🎯 Strategy

Used

Substitution

Application:

�� Substitute values into allotment formula.

Final Logic:

�� Correct journal entry must reflect receipt of Rs. 6,30,000.

🧠 Memory Trick

"Bank Dr. When Cash Comes"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Issue at Par – Page X

8 TV Components Ltd. issued 10,000, 12% debentures of Rs. 100 each at a discount of 5%. What is the calculated total amount debited to "Discount on Issue of Debentures A/c"?

A Rs. 1,00,000

B Rs. 5,00,000

C Rs. 50,000

D Rs. 5,50,000

💡 Short Explanation

Discount = 5% of face value. Total value = 10,000 × 100. Discount amount = Rs. 50,000.

✅ Correct Answer Explanation

Total face value = 10,000 × 100 = Rs. 10,00,000. Discount at 5% = Rs. 50,000. This amount is debited to Discount on Issue of Debentures A/c. Hence, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect percentage calculation.
Option B → Excessively high amount.
Option D → Includes wrong totals.

🎯 Strategy

Used

Substitution

Application:

�� Apply percentage formula directly.

Final Logic:

�� 5% of Rs. 10,00,000 equals Rs. 50,000.

🧠 Memory Trick

"5% of 10 Lakh = 50K"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Issue at Discount – Page X

9 Create a "Match the Following" question linking issue conditions to accounting treatments.

List 1	List 2
1. Premium on Issue	a. Credited to Securities Premium Reserve
2. Discount on Issue	b. Debited to Discount on Issue A/c
3. Issue at Par	c. Price equals face value
4. Call Money	d. Debited to Debenture First Call A/c

A 1-c, 2-a, 3-b, 4-d

B 1-a, 2-b, 3-c, 4-d

C 1-d, 2-c, 3-b, 4-a

D 1-b, 2-d, 3-a, 4-c

💡 Short Explanation

Premium goes to Securities Premium. Discount creates a loss. Par equals face value.

✅ Correct Answer Explanation

Premium on issue is credited to Securities Premium Reserve. Discount on issue is debited to Discount on Issue A/c. Issue at par means issue price equals face value. Call money due is debited to Debenture First Call A/c. Thus, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect treatment of premium and par.
Option C → Incorrect matching of discount and call.
Option D → Entire mapping is wrong.

🎯 Strategy

Used

Option Grouping

Application:

�� Match accounting concepts with their correct treatments.

Final Logic:

�� Correct accounting pairings identify the answer.

🧠 Memory Trick

"Premium Credit, Discount Debit"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Premium Issue – Page X

10 Where is the Securities Premium Reserve account specifically shown in the balance sheet?

A Current Liabilities

B Non-current Assets

C Long-term borrowings

D Liabilities side under the head "Reserves and Surpluses"

💡 Short Explanation

Securities premium is a reserve. Appears under shareholders' funds. It is not an asset or borrowing.

✅ Correct Answer Explanation

Securities Premium Reserve is shown on the liabilities side of the balance sheet under "Reserves and Surpluses" as part of shareholders' funds. Therefore, option D is correct.

❓ Why Other Options Are Incorrect

Option A → It is not a current liability.
Option B → Reserve is not an asset.
Option C → Premium reserve is not borrowing.

🎯 Strategy

Used

Elimination

Application:

�� Eliminate classifications inconsistent with reserves.

Final Logic:

�� Securities premium belongs under reserves and surpluses.

🧠 Memory Trick

"Premium = Reserve Side"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Premium Accounting – Page X

11 If XYZ Industries Ltd. issues 2,000, 10% debentures at Rs. 100 each with Rs. 10 premium, payable Rs. 50 on application, what is the numerical application money received?

A Rs. 20,000

B Rs. 1,00,000

C Rs. 1,20,000

D Rs. 2,00,000

💡 Short Explanation

Application money per debenture = Rs. 50. Total debentures = 2,000. Application money = 2,000 × 50.

✅ Correct Answer Explanation

Application money received is calculated on the amount payable during application. 2,000 debentures × Rs. 50 = Rs. 1,00,000. The premium is not included in the application stage unless specifically stated. Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect multiplication.
Option C → Incorrectly includes premium.
Option D → Represents full issue value.

🎯 Strategy

Used

Substitution

Application:

�� Multiply number of debentures by application amount.

Final Logic:

�� Rs. 50 × 2,000 = Rs. 1,00,000.

🧠 Memory Trick

"Application = Quantity × Application Rate"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Application Entry – Page X

12 Which of the following multiple statements correctly identifies the entries made during allotment when issued at a discount?
I. Debenture Allotment A/c is debited.
II. Discount on Issue of Debentures A/c is debited.

A Only I is correct

B Only II is correct

C Both I and II are correct

D Neither I nor II is correct

💡 Short Explanation

Allotment due creates allotment account. Discount is treated as capital loss. Both accounts are debited appropriately.

✅ Correct Answer Explanation

During allotment, Debenture Allotment A/c is debited when the amount becomes due. If debentures are issued at discount, Discount on Issue of Debentures A/c is also debited because discount represents a capital loss. Hence, both statements are correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is also correct.
Option B → Statement I is also correct.
Option D → Both statements are valid.

🎯 Strategy

Used

Elimination

Application:

�� Check whether each accounting treatment is conceptually valid.

Final Logic:

�� Both debit entries are necessary during discounted issue.

🧠 Memory Trick

"Discount Means Extra Debit"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Allotment Entry – Page X

13 Arrange the sequential order of making and collecting a first call on debentures:
1. Bank A/c Dr. To Debenture First Call A/c
2. Debenture First Call A/c Dr. To Debentures A/c

A 2 -> 1

B 1 -> 2

C Both occur simultaneously

D None of the above

💡 Short Explanation

First call becomes due first. Collection happens after due entry. Bank entry follows receipt.

✅ Correct Answer Explanation

The company first makes the call due by debiting Debenture First Call A/c and crediting Debentures A/c. After shareholders pay the amount, Bank A/c is debited and Debenture First Call A/c is credited. Therefore, the correct sequence is 2 → 1.

❓ Why Other Options Are Incorrect

Option B → Receipt cannot occur before amount due.
Option C → Due and receipt are separate stages.
Option D → Correct sequence exists.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Follow the chronological accounting process.

Final Logic:

�� Amount becomes due before collection occurs.

🧠 Memory Trick

"Due First, Cash Later"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Call Money – Page X

14 Assertion (A): Debenture First Call A/c is credited when the call money is received.
Reason (R): Bank A/c is debited to reflect the inflow of cash from the first call.

A A is true, R is false

B Both A and R are false

C A is false, R is true

D Both A and R are true and R is the correct explanation

💡 Short Explanation

Cash receipt debits Bank. Call account is credited on receipt. Reason correctly explains assertion.

✅ Correct Answer Explanation

When first call money is received, Bank A/c is debited because cash increases, and Debenture First Call A/c is credited to close the receivable. Thus, both Assertion and Reason are true, and Reason correctly explains Assertion.

❓ Why Other Options Are Incorrect

Option A → Reason is not false.
Option B → Both statements are true.
Option C → Assertion is also true.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Link accounting treatment with cash inflow concept.

Final Logic:

�� Cash received increases Bank and reduces call receivable.

🧠 Memory Trick

"Cash In → Bank Dr."

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Multiple Calls – Page X

15 How is the concept of discount on issue of debentures treated if it is to be written off within 12 months of the balance sheet date?

A Shown under Share Capital

B Shown under 'Other Current Assets'

C Shown under 'Other Non-Current Assets'

D Deducted from Long-term borrowings

💡 Short Explanation

Short-term write-off becomes current asset. Treated as deferred revenue expenditure. Balance sheet classification depends on duration.

✅ Correct Answer Explanation

If discount on issue of debentures is to be written off within 12 months, it is shown under "Other Current Assets." This classification reflects its short-term nature. Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → It is not share capital.
Option C → Used only for long-term write-off.
Option D → Discount is separately disclosed.

🎯 Strategy

Used

Elimination

Application:

�� Match accounting classification with time period.

Final Logic:

�� Less than 12 months means current asset treatment.

🧠 Memory Trick

"12 Months = Current"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Discount Treatment – Page X

16 A company has Rs. 50,000 in Securities Premium Reserve and writes off Rs. 1,50,000 as discount on issue. How much is calculated to be debited to Statement of Profit and Loss?

A Rs. 1,50,000

B Rs. 50,000

C Rs. 1,00,000

D Rs. 0

💡 Short Explanation

Securities Premium absorbs part of loss. Remaining balance goes to P&L. Rs. 1,50,000 – Rs. 50,000 = Rs. 1,00,000.

✅ Correct Answer Explanation

Discount on issue = Rs. 1,50,000. Securities Premium Reserve can be used to write off Rs. 50,000. The remaining Rs. 1,00,000 is debited to Statement of Profit and Loss. Hence, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Ignores use of Securities Premium.
Option B → Only premium reserve amount.
Option D → Entire amount cannot be absorbed.

🎯 Strategy

Used

Substitution

Application:

�� Subtract reserve amount from total discount.

Final Logic:

�� Remaining unrecovered discount is charged to P&L.

🧠 Memory Trick

"Discount Minus Premium = P&L"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Write-off Methods – Page X

17 In the conceptual framework of the balance sheet, "9,000, 12% Debentures of Rs. 100 each" will be classified specifically as:

A Long-term borrowings

B Short-term provisions

C Trade payables

D Other current liabilities

💡 Short Explanation

Debentures are borrowed funds. They are generally long-term liabilities. Classified under non-current liabilities.

✅ Correct Answer Explanation

Debentures represent long-term debt raised by the company. Therefore, they are classified as long-term borrowings in the balance sheet. Hence, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Debentures are not provisions.
Option C → Trade payables relate to creditors.
Option D → Debentures are not current liabilities normally.

🎯 Strategy

Used

Elimination

Application:

�� Remove classifications unrelated to borrowing.

Final Logic:

�� Debentures are long-term sources of finance.

🧠 Memory Trick

"Debenture = Debt"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Presentation of Debentures – Page X

18 If debentures are issued for cash, the corresponding asset side entry is theoretically found under:

A Inventories

B Fixed Assets

C Non-current investments

D Cash and cash equivalents

💡 Short Explanation

Cash is received from issue. Bank balance increases. Asset side reflects liquidity increase.

✅ Correct Answer Explanation

When debentures are issued for cash, the company receives money. Therefore, the corresponding asset increase appears under Cash and Cash Equivalents. Hence, option D is correct.

❓ Why Other Options Are Incorrect

Option A → No inventory increase occurs.
Option B → Fixed assets are not received.
Option C → Investments are unrelated here.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Identify the asset received from debenture issue.

Final Logic:

�� Cash issue directly increases liquid assets.

🧠 Memory Trick

"Issue for Cash = Cash Asset"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Assets Representation – Page X

19 What is the formula/entry when excess application money is transferred directly to allotment?

A Debit Debenture Allotment, Credit Bank

B Debit Debenture Application, Credit Debenture Allotment

C Debit Bank, Credit Debenture Application

D Debit Debenture Allotment, Credit Debentures

💡 Short Explanation

Excess money is adjusted internally. Application account decreases. Allotment liability reduces.

✅ Correct Answer Explanation

When excess application money is adjusted towards allotment, Debenture Application A/c is debited and Debenture Allotment A/c is credited. This transfers surplus application money to the allotment stage. Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → No bank movement occurs.
Option C → Represents receipt of application money.
Option D → Incorrect adjustment entry.

🎯 Strategy

Used

Elimination

Application:

�� Identify entry involving adjustment between stages.

Final Logic:

�� Excess application moves into allotment account.

🧠 Memory Trick

"Application Excess → Allotment"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Adjustment to Allotment – Page X

20 X Limited issued 10,000 debentures. Applications for 14,000 were received. 9,000 were fully accepted, 2,000 got 1,000, and 3,000 were rejected. How much money is numerically refunded if application money is Rs. 40?

A Rs. 40,000

B Rs. 80,000

C Rs. 1,20,000

D Rs. 1,60,000

💡 Short Explanation

Rejected applications = 3,000. Refund applies to rejected applicants only. Refund = 3,000 × Rs. 40.

✅ Correct Answer Explanation

Application money refundable relates to rejected applicants. Rejected applications = 3,000 debentures. Application money per debenture = Rs. 40. Refund = 3,000 × 40 = Rs. 1,20,000. Therefore, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect multiplication.
Option B → Partial calculation only.
Option D → Excess calculation.

🎯 Strategy

Used

Substitution

Application:

�� Multiply rejected quantity by application amount.

Final Logic:

�� Refund only applies to rejected applications.

🧠 Memory Trick

"Rejected × Application Money"

📚 Class XII – Accountancy Part II – Chapter: Issue and Redemption of Debentures – Topic: Final Collection – Page X

CUET UG Accountancy Booster Test 1 Issue of Debentures

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