CUET UG Accountancy Booster Test 3 Issue of Debentures -

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CUET UG Accountancy Booster Test 2 Issue of Debentures

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Issue of Debentures

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QUESTION 1 OF 20

📄 Passage

When a debenture is issued at a price below its nominal value, it is said to be issued at a discount. For example, the issue of Rs. 100 debentures at Rs. 95, Rs. 5 being the amount of discount. The discount on issue of debentures can be written off either by debiting it to or out of Securities Premium Reserve, if any, during the lifetime of debentures. The Companies Act, 2013 does not impose any restrictions upon the issue of debentures at a discount.

Based on the passage context, if the debenture was instead issued at exactly Rs. 100 (nominal value), it would be conceptually termed as:

Answer Review

📄 Passage

Based on the passage context, if the debenture was instead issued at exactly Rs. 100 (nominal value), it would be conceptually termed as:

A Issued at Premium

B Issued at Discount

C Issued at Par

D Issued for Consideration

💡 Short Explanation

Issue price equals nominal value. No discount or premium exists. Such issue is called "at par."

✅ Correct Answer Explanation

When debentures are issued exactly at their nominal or face value, the issue is termed as "Issue at Par." Since Rs. 100 debentures are issued at Rs. 100, neither premium nor discount arises. Therefore, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Premium means issue above face value.
Option B → Discount means issue below face value.
Option D → Generic term, not specific classification.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Compare issue price with nominal value.

Final Logic:

�� Equal values imply issue at par.

🧠 Memory Trick

"Par = Equal Value"

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

📄 Passage

According to the analytical reading of the passage, does the Companies Act, 2013 restrict issuing debentures at Rs. 95 (face value Rs. 100)?

A No, it imposes no restrictions

B Yes, it caps the discount at 5%

C Yes, it caps the discount at 10%

D Yes, discount issues are completely banned

💡 Short Explanation

Passage explicitly mentions no restrictions. Discount issue is legally permitted. Companies Act allows such issue.

✅ Correct Answer Explanation

The passage clearly states that the Companies Act, 2013 does not impose any restrictions on issue of debentures at a discount. Hence, issuing Rs. 100 debentures at Rs. 95 is legally permitted. Therefore, option A is correct.

❓ Why Other Options Are Incorrect

Option B → No 5% cap exists.
Option C → No 10% cap exists.
Option D → Discount issue is not banned.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Identify direct legal statement from passage.

Final Logic:

�� Passage explicitly removes restriction.

🧠 Memory Trick

"Discount Allowed"

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

3 Assertion (A): Investors can apply for more debentures than what the company offered in the prospectus, leading to over-subscription.
Reason (R): The company is legally obligated to allot debentures to all applicants regardless of the prospectus limit.

A Both A and R are true

B A is false but R is true

C Both A and R are false

D A is true but R is false

💡 Short Explanation

Over-subscription is possible. Company need not allot beyond limit. Prospectus limit restricts allotment.

✅ Correct Answer Explanation

Assertion is true because investors may apply for more debentures than the quantity offered, resulting in over-subscription. Reason is false because the company is not legally required to allot debentures beyond the prospectus limit. Therefore, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Reason is incorrect.
Option B → Assertion is definitely true.
Option C → Assertion is not false.

🎯 Strategy

Used

Elimination

Application:

�� Check legality of allotment process.

Final Logic:

�� Over-subscription does not compel excess allotment.

🧠 Memory Trick

"Apply More, Allot Limited"

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

4 Match the following application outcomes during over-subscription:

List 1	List 2
1. Fully accepted applications	a. All applied debentures are allotted
2. Partially accepted applications	b. Excess money adjusted towards allotment
3. Rejected applications	c. Money is refunded
4. Prospectus limit	d. Cannot be exceeded during allotment

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

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

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

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

💡 Short Explanation

Fully accepted means full allotment. Partial acceptance adjusts excess money. Rejected applicants receive refund.

✅ Correct Answer Explanation

Fully accepted applications receive all applied debentures. Partially accepted applications have excess application money adjusted towards allotment. Rejected applications receive refund of money. Prospectus limit cannot be exceeded during allotment. Hence, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect matching.
Option C → Multiple mismatches.
Option D → Incorrect allocation.

🎯 Strategy

Used

Option Grouping

Application:

�� Match application outcomes with consequences.

Final Logic:

�� Correct procedural matching identifies answer.

🧠 Memory Trick

"Reject = Refund"

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

5 Which multiple statements are analytically correct for lump sum collection of 9,000 debentures @ Rs. 100?
I. Bank A/c is debited by Rs. 9,00,000.
II. Debenture Allotment A/c is credited separately for Rs. 9,00,000.

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

Lump sum means entire amount collected together. Bank receives Rs. 9,00,000. Separate allotment entry is unnecessary.

✅ Correct Answer Explanation

For lump sum payment: 9,000 × Rs. 100 = Rs. 9,00,000 Bank A/c is debited with total amount received. Since collection occurs in one stage, separate Debenture Allotment A/c credit is not required. Therefore, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Separate allotment entry is unnecessary.
Option C → Statement II is incorrect.
Option D → Statement I is correct.

🎯 Strategy

Used

Elimination

Application:

�� Identify accounting effect of lump sum issue.

Final Logic:

�� Single receipt removes separate allotment stage.

🧠 Memory Trick

"Lump Sum = One Collection"

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

6 Arrange the sequence of accounting stages for the instalment method:
1. Amount due on allotment is recorded
2. Application money is received
3. Allotment money is received
4. Application money is transferred to Debentures A/c

A 2 → 1 → 4 → 3

B 1 → 2 → 3 → 4

C 2 → 4 → 1 → 3

D 4 → 2 → 3 → 1

💡 Short Explanation

Application money is received first. Then transferred to Debentures A/c. Allotment due and receipt follow later.

✅ Correct Answer Explanation

The instalment process begins with receipt of application money. Then application money is transferred to Debentures A/c. After that, allotment becomes due and finally allotment money is received. Hence, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Allotment due cannot precede transfer.
Option B → Sequence begins incorrectly.
Option D → Transfer cannot occur before receipt.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Follow chronological accounting process.

Final Logic:

�� Receipt precedes transfer and allotment stages.

🧠 Memory Trick

"Receive → Transfer → Due → Receive"

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

7 A Limited issued 5,000 debentures of Rs. 100 each at a premium of Rs. 10. Application is Rs. 25, Allotment is Rs. 45 (including premium). What is the calculated amount credited to Debentures A/c on allotment?

A Rs. 2,25,000

B Rs. 1,75,000

C Rs. 50,000

D Rs. 1,25,000

💡 Short Explanation

Premium portion excluded from Debentures A/c. Debenture value credited = Rs. 35 per debenture. 5,000 × 35 = Rs. 1,75,000.

✅ Correct Answer Explanation

Allotment amount = Rs. 45 including Rs. 10 premium. Thus, amount credited to Debentures A/c on allotment: Rs. 45 – Rs. 10 = Rs. 35 per debenture 5,000 × Rs. 35 = Rs. 1,75,000 Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Includes premium incorrectly.
Option C → Represents premium only.
Option D → Incorrect multiplication.

🎯 Strategy

Used

Substitution

Application:

�� Separate premium from allotment amount.

Final Logic:

�� Debentures A/c excludes premium portion.

🧠 Memory Trick

"Remove Premium First"

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

8 Conceptually, if debentures are issued at a premium, the premium amount is strictly treated as:

A A revenue profit

B An operating income

C A current liability

D A reserve shown under Reserves and Surpluses

💡 Short Explanation

Premium is capital profit. Transferred to Securities Premium Reserve. Shown under reserves and surplus.

✅ Correct Answer Explanation

Premium on issue of debentures is treated as a capital reserve and credited to Securities Premium Reserve. It is presented under "Reserves and Surpluses" in the Balance Sheet. Therefore, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Not revenue profit.
Option B → Not operating income.
Option C → Not liability.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Identify accounting treatment of premium.

Final Logic:

�� Premium creates reserve, not revenue.

🧠 Memory Trick

"Premium = Reserve"

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

9 Which formula/entry accurately reflects the receipt of application money for debentures issued at a discount?

A Debit Bank A/c, Credit Debentures A/c

B Debit Bank A/c, Credit Debenture Application A/c

C Debit Debenture Application A/c, Credit Bank A/c

D Debit Discount on Issue A/c, Credit Bank A/c

💡 Short Explanation

Application receipt increases bank balance. Application account is credited. Discount treatment occurs later.

✅ Correct Answer Explanation

Receipt of application money is recorded by: Bank A/c Dr. To Debenture Application A/c Discount on issue does not affect the application receipt entry. Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Debentures A/c is not credited directly on receipt.
Option C → Entry is reversed.
Option D → Discount entry is unrelated to receipt.

🎯 Strategy

Used

Formula Recognition

Application:

�� Recall standard application money entry.

Final Logic:

�� Bank receipt always debits Bank A/c.

🧠 Memory Trick

"Cash In = Bank Dr."

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

10 XYZ Ltd. issued 2,000 debentures of Rs. 100 at Rs. 110. Allotment was Rs. 60 (including premium). What is the exact numerical amount debited to Debenture Allotment A/c?

A Rs. 1,20,000

B Rs. 1,00,000

C Rs. 20,000

D Rs. 2,20,000

💡 Short Explanation

Allotment due = Rs. 60 each. 2,000 × Rs. 60. Total = Rs. 1,20,000.

✅ Correct Answer Explanation

Debenture Allotment A/c is debited with the amount due: 2,000 × Rs. 60 = Rs. 1,20,000 Therefore, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect multiplication.
Option C → Represents premium only.
Option D → Total issue value, not allotment.

🎯 Strategy

Used

Substitution

Application:

�� Multiply number of debentures by allotment due.

Final Logic:

�� Allotment account records total due amount.

🧠 Memory Trick

"Quantity × Allotment"

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

11 Theoretically, what distinguishes the "Call Money" stage from the "Application" stage?

A Call money is received before the debentures are allotted.

B Call money involves refunding excess capital.

C Call money is made due first (Debenture Call A/c Dr.) and then received.

D Call money is always combined with the application stage.

💡 Short Explanation

Call money arises after allotment. Amount becomes due first. Receipt occurs afterwards.

✅ Correct Answer Explanation

Call money is collected after allotment and follows a two-step accounting process. First, the amount due is recorded through Debenture Call A/c, and later the money is received from debenture holders. Therefore, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Application stage occurs before allotment.
Option B → Refund relates to over-subscription.
Option D → Call stage is separate from application stage.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Compare stages of issue process.

Final Logic:

�� Call money involves "due" and "receipt" stages.

🧠 Memory Trick

"Call Due First, Cash Later"

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

12 Consider the following multiple statements about multiple calls:
I. Entries for second and final calls are similar to the first call.
II. A company cannot legally make more than two calls.

A Both I and II are correct

B Only II is correct

C Neither I nor II is correct

D Only I is correct

💡 Short Explanation

Call entries follow similar pattern. No strict legal limit of two calls exists. Statement II is incorrect.

✅ Correct Answer Explanation

Statement I is correct because accounting entries for second and final calls are similar to those for the first call. Statement II is false because companies are not legally restricted to only two calls unless specified in issue terms. Therefore, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is false.
Option B → Statement I is definitely true.
Option C → Statement I is correct.

🎯 Strategy

Used

Elimination

Application:

�� Verify procedural and legal aspects.

Final Logic:

�� Multiple calls may continue beyond two stages.

🧠 Memory Trick

"Calls Can Repeat"

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

13 Assertion (A): The part of discount on issue of debentures to be written off after 12 months is shown under "Other Non-Current Assets."
Reason (R): It is a capital loss that extends beyond the immediate operating cycle.

A A is false, R is true

B A is true, R is false

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

D Both A and R are false

💡 Short Explanation

Long-term write-off becomes non-current asset. Discount represents deferred capital loss. Reason explains classification.

✅ Correct Answer Explanation

The portion of discount on issue of debentures that will be written off after 12 months is classified as "Other Non-Current Assets." This is because the discount represents a deferred capital loss extending beyond the current operating cycle. Therefore, both Assertion and Reason are true, and Reason correctly explains Assertion.

❓ Why Other Options Are Incorrect

Option A → Assertion is true.
Option B → Reason is also true.
Option D → Both statements are correct.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Link asset classification with accounting nature.

Final Logic:

�� Long-term write-off requires non-current treatment.

🧠 Memory Trick

"Beyond 12 Months = Non-Current"

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

14 A company issues 15,000 debentures of Rs. 100 at 10% discount. It has Rs. 1,00,000 in Securities Premium Reserve. What is the total combined discount amount calculated to be written off across all accounts?

A Rs. 1,50,000

B Rs. 1,00,000

C Rs. 50,000

D Rs. 2,50,000

💡 Short Explanation

Discount = 10% of total issue value. Total issue value = Rs. 15,00,000. Discount = Rs. 1,50,000.

✅ Correct Answer Explanation

Total nominal value of debentures: 15,000 × Rs. 100 = Rs. 15,00,000 Discount @10%: Rs. 15,00,000 × 10% = Rs. 1,50,000 This total discount amount is to be written off, whether through Securities Premium Reserve or other accounts. Hence, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Represents reserve only.
Option C → Understated discount.
Option D → Excess amount.

🎯 Strategy

Used

Substitution

Application:

�� Multiply total issue value by discount rate.

Final Logic:

�� Total loss equals total discount issued.

🧠 Memory Trick

"Issue Value × Discount Rate"

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

15 Conceptually, under Notes to Accounts, how are debentures explicitly detailed?

A Under Cash and Cash Equivalents

B Under Short-term Borrowings

C Under Trade Receivables

D Under Long-term borrowings with specific quantity, percentage, and face value

💡 Short Explanation

Debentures are long-term liabilities. Notes disclose detailed particulars. Quantity and interest rate are specified.

✅ Correct Answer Explanation

Debentures are presented under "Long-term Borrowings" in the Notes to Accounts, along with details such as quantity, percentage rate, and face value. Therefore, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Debentures are liabilities, not cash.
Option B → Usually not short-term borrowings.
Option C → Trade receivables are assets.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Identify proper balance sheet disclosure.

Final Logic:

�� Debenture details belong under long-term borrowings.

🧠 Memory Trick

"Debt Under Borrowings"

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

16 Arrange the sequence to find the balance of Cash and Cash Equivalents after an issue at premium:
1. Add premium received
2. Start with zero or opening bank balance
3. Add nominal face value collected

A 3 → 1 → 2

B 2 → 3 → 1

C 1 → 2 → 3

D 3 → 2 → 1

💡 Short Explanation

Begin with opening balance. Add face value collected. Add premium amount afterwards.

✅ Correct Answer Explanation

The calculation starts with the opening bank balance. Then nominal value collected from debenture issue is added. Finally, premium received is added to determine total cash balance. Hence, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Opening balance must come first.
Option C → Premium cannot precede base amount.
Option D → Sequence is incorrect.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Follow logical cash accumulation process.

Final Logic:

�� Opening balance precedes additions.

🧠 Memory Trick

"Start → Face Value → Premium"

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

17 A company offered 10,000 debentures. Applications for 14,000 were received. 9,000 were accepted in full, 2,000 were allotted 1,000, and 3,000 were rejected. How many total debentures were numerically allotted?

A 14,000

B 11,000

C 10,000

D 9,000

💡 Short Explanation

Fully accepted = 9,000. Partial allotment = 1,000. Total allotment = 10,000.

✅ Correct Answer Explanation

Debentures allotted: Fully accepted = 9,000 Partial allotment = 1,000 Total allotment = 10,000 debentures Therefore, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Represents total applications.
Option B → Incorrect addition.
Option D → Excludes partial allotment.

🎯 Strategy

Used

Substitution

Application:

�� Add fully allotted and partially allotted quantities.

Final Logic:

�� Rejected applications are excluded.

🧠 Memory Trick

"Accepted + Partial = Total Allotted"

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

18 What formula determines the refund amount for fully rejected applications?

A Number of rejected applications × Application money per debenture

B Total applications × Application money

C Total allotted debentures × Allotment money

D Excess applications × Allotment money

💡 Short Explanation

Refund applies only to rejected applicants. Application money is refundable. Formula multiplies rejected quantity and application amount.

✅ Correct Answer Explanation

Refund amount is calculated using: Rejected applications × Application money per debenture This determines the exact refund payable to rejected applicants. Hence, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Includes accepted applications incorrectly.
Option C → Allotment money is unrelated.
Option D → Formula is incorrect.

🎯 Strategy

Used

Formula Recognition

Application:

�� Identify standard refund calculation method.

Final Logic:

�� Refund relates only to rejected applications.

🧠 Memory Trick

"Rejected × Application Money"

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

19 Theoretically, when excess application money is adjusted to allotment, what is the impact on the subsequent receipt of allotment money?

A The allotment money received in the bank increases.

B It has no impact on the bank receipt.

C The allotment call is cancelled entirely.

D The actual cash received on allotment is reduced by the adjusted amount.

💡 Short Explanation

Excess application money offsets allotment dues. Less fresh cash is collected later. Adjustment reduces bank receipt.

✅ Correct Answer Explanation

When excess application money is adjusted toward allotment, part of the allotment obligation is already settled. Therefore, the actual cash received during allotment is reduced by the adjusted amount. Hence, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Bank receipt decreases, not increases.
Option B → Adjustment definitely affects receipt.
Option C → Allotment stage still exists.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Understand adjustment mechanism.

Final Logic:

�� Prior payment reduces future collection.

🧠 Memory Trick

"Adjusted Earlier = Less Cash Later"

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

20 X Limited allotted 10,000 debentures. Allotment money due was Rs. 6,00,000. Excess application money adjusted was Rs. 40,000. What is the calculated final amount received in the Bank A/c for allotment?

A Rs. 6,40,000

B Rs. 5,60,000

C Rs. 6,00,000

D Rs. 40,000

💡 Short Explanation

Allotment due = Rs. 6,00,000. Excess adjusted = Rs. 40,000. Cash received = Rs. 5,60,000.

✅ Correct Answer Explanation

Final cash received on allotment: Rs. 6,00,000 – Rs. 40,000 = Rs. 5,60,000 Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Adds instead of subtracting adjustment.
Option C → Ignores adjustment.
Option D → Represents adjusted amount only.

🎯 Strategy

Used

Substitution

Application:

�� Subtract adjusted excess from allotment due.

Final Logic:

�� Adjustment reduces fresh bank receipt.

🧠 Memory Trick

"Due – Adjustment = Bank Receipt"

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

CUET UG Accountancy Booster Test 2 Issue of Debentures

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