CUET UG Accountancy Booster Test 3 Special Issues of Debentures -

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CUET UG Accountancy Booster Test 2 Special Issues of Debentures

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Special Issues of Debentures

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QUESTION 1 OF 20

Match the following regarding non-cash transactions:

List 1	List 2
1. Buying Machinery	a. Debit specific Asset A/c only
2. Buying a Business	b. Assets and Liabilities are both taken over
3. Issuing Debentures at Par	c. Debentures credited = Face Value only, no premium/discount
4. Issuing Debentures at Premium	d. Credited to Securities Premium Reserve

Answer Review

1 Match the following regarding non-cash transactions:

List 1	List 2
1. Buying Machinery	a. Debit specific Asset A/c only
2. Buying a Business	b. Assets and Liabilities are both taken over
3. Issuing Debentures at Par	c. Debentures credited = Face Value only, no premium/discount
4. Issuing Debentures at Premium	d. Credited to Securities Premium Reserve

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

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

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

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

💡 Short Explanation

Machinery purchase debits specific asset. Business purchase includes assets and liabilities. Premium credited to Securities Premium Reserve.

✅ Correct Answer Explanation

Buying machinery involves debiting a specific asset account. Buying a business means both assets and liabilities are taken over. Issue at par credits only Debentures A/c with face value. Issue at premium requires premium to be credited to Securities Premium Reserve. Hence, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect matching of all categories.
Option B → Multiple conceptual mismatches.
Option D → Premium and par treatments are incorrect.

🎯 Strategy

Used

Option Grouping

Application:

�� Match accounting treatment with transaction type.

Final Logic:

�� Correct conceptual pairing identifies answer.

🧠 Memory Trick

"Premium Goes to Reserve"

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

2 Assertion (A): The Vendor account is credited when debentures are finally issued and allotted to him.
Reason (R): The vendor is the receiver of the debentures and his liability balance is being reduced.

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

B Both A and R are true but R is not the correct explanation of A

C A is true, but R is false

D A is false, but R is true

💡 Short Explanation

Vendor account is debited during settlement. Liability toward vendor gets reduced. Debentures account is credited.

✅ Correct Answer Explanation

When debentures are issued to the vendor, the Vendor A/c is debited because the liability payable to the vendor is settled. The debentures issued are credited to Debentures A/c. Therefore, Assertion is false. Reason is true because the vendor receives debentures and the payable balance is reduced. Hence, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion is incorrect.
Option B → Vendor account is not credited.
Option C → Reason is true.

🎯 Strategy

Used

Elimination

Application:

�� Identify correct settlement entry.

Final Logic:

�� Vendor liability decreases through debit entry.

🧠 Memory Trick

"Payable Reduced = Debit Vendor"

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

3 In a scenario where debentures are issued at par to a vendor:
I. Face Value strictly equals the Issue Price.
II. No premium or discount account is recorded in the settlement entry.
III. Capital Reserve is mandatorily created in a par issue.

A I and II only

B II and III only

C I and III only

D All are correct

💡 Short Explanation

At par means equal values. No premium or discount arises. Capital reserve is not compulsory.

✅ Correct Answer Explanation

Statement I is correct because issue price equals face value in a par issue. Statement II is also correct because no premium or discount account is involved. Statement III is false because Capital Reserve arises only when net assets exceed purchase consideration. Hence, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement III is false.
Option C → Statement II is also true.
Option D → Capital Reserve is not mandatory.

🎯 Strategy

Used

Elimination

Application:

�� Verify consequences of par issue.

Final Logic:

�� Par issue involves no premium/discount effect.

🧠 Memory Trick

"Par Means Equal"

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

4 When settling a vendor's account, if the calculation for the number of debentures results in a fraction, how is this fraction typically settled?

A By issuing fractional debentures

B By paying the fractional amount in cash

C By ignoring the fraction entirely

D By issuing an extra full debenture

💡 Short Explanation

Fractional debentures are generally avoided. Fraction value is settled separately. Cash payment resolves fractional balance.

✅ Correct Answer Explanation

If the number of debentures calculated includes a fraction, the company usually settles the fractional value by paying cash instead of issuing fractional debentures. Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Fractional debentures are generally not issued.
Option C → Fraction cannot be ignored.
Option D → Extra issue would overpay the vendor.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Identify practical settlement method.

Final Logic:

�� Cash payment resolves fractional entitlement.

🧠 Memory Trick

"Fraction Settled in Cash"

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

5 Order the steps required to record the settlement to a vendor by issuing debentures at a premium:
I. Credit 10% Debentures A/c with the total Face Value.
II. Debit Vendor A/c with the agreed Purchase Consideration.
III. Credit Securities Premium Reserve A/c with the Premium Amount.

A I, II, III

B III, II, I

C II, I, III

D I, III, II

💡 Short Explanation

Vendor liability is settled first. Debentures credited with face value. Premium credited separately.

✅ Correct Answer Explanation

The Vendor A/c is first debited with purchase consideration to settle liability. Then Debentures A/c is credited with face value and Securities Premium Reserve is credited with premium amount. Therefore, the correct sequence is II → I → III.

❓ Why Other Options Are Incorrect

Option A → Vendor settlement must come first.
Option B → Premium cannot precede settlement.
Option D → Sequence is incorrect.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Follow chronological accounting flow.

Final Logic:

�� Vendor settlement precedes debenture issue entries.

🧠 Memory Trick

"Vendor → Debentures → Premium"

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

6 Securities Premium Reserve generated during a non-cash issue of debentures to a vendor is presented in the Company's Balance Sheet under which major head?

A Current Liabilities

B Non-Current Assets

C Share Capital

D Reserves and Surplus

💡 Short Explanation

Premium is capital reserve. Appears under reserves section. Not treated as liability or asset.

✅ Correct Answer Explanation

Securities Premium Reserve is a capital reserve and is presented under "Reserves and Surplus" in the Balance Sheet. Therefore, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Premium is not liability.
Option B → It is not an asset.
Option C → Separate from share capital.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Identify balance sheet classification.

Final Logic:

�� Premium reserve belongs under reserves.

🧠 Memory Trick

"Premium = Reserve"

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

7 The specific amount debited to "Discount on Issue of Debentures A/c" during a vendor settlement is mathematically determined by:

A Total number of Debentures Issued × Discount per debenture

B Purchase Consideration × Discount rate

C Face Value minus the original Purchase Consideration

D Total Face Value + Total Discount

💡 Short Explanation

Discount applies per debenture. Total loss equals aggregate discount. Multiply quantity and discount amount.

✅ Correct Answer Explanation

Discount on Issue of Debentures is calculated by multiplying the total number of debentures issued by the discount per debenture. Hence, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Purchase consideration is not directly used.
Option C → Incorrect formula.
Option D → Discount is not added to face value.

🎯 Strategy

Used

Formula Recognition

Application:

�� Apply standard discount formula.

Final Logic:

�� Aggregate discount equals unit discount × quantity.

🧠 Memory Trick

"Number × Discount"

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

8 Regarding the recognition of loss or discount on the issue of debentures:
I. It must be written off in the year the debentures are issued.
II. It can be written off directly from the Securities Premium Reserve.

A Only I is true

B Both I and II are true

C Only II is true

D Neither is true

💡 Short Explanation

Discount represents capital loss. It may be written off immediately. Securities Premium Reserve can absorb loss.

✅ Correct Answer Explanation

Discount on issue of debentures is a capital loss and may be written off in the year of issue or adjusted against Securities Premium Reserve if available. Therefore, both statements are true and option B is correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is also true.
Option C → Statement I is also true.
Option D → Both statements are correct.

🎯 Strategy

Used

Elimination

Application:

�� Verify treatment of discount loss.

Final Logic:

�� Securities Premium Reserve may offset discount.

🧠 Memory Trick

"Premium Can Absorb Discount"

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

9 Blue Prints Ltd. bought machinery for Rs 1,40,000, building for Rs 1,50,000, furniture for Rs 10,000 and took over liabilities of Rs 20,000. What is the calculated value of the net assets?

A Rs 3,00,000

B Rs 3,20,000

C Rs 2,80,000

D Rs 3,10,000

💡 Short Explanation

Total assets = Rs. 3,00,000. Less liabilities = Rs. 20,000. Net assets = Rs. 2,80,000.

✅ Correct Answer Explanation

Total assets acquired: Machinery = Rs. 1,40,000 Building = Rs. 1,50,000 Furniture = Rs. 10,000 Total = Rs. 3,00,000 Less liabilities taken over = Rs. 20,000 Net Assets = Rs. 2,80,000 Hence, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Ignores liabilities.
Option B → Incorrect addition.
Option D → Incorrect deduction.

🎯 Strategy

Used

Substitution

Application:

�� Apply net assets formula.

Final Logic:

�� Net assets = Assets – Liabilities.

🧠 Memory Trick

"Net = Assets Less Liabilities"

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

10 If the Purchase Consideration is already agreed upon, how is the number of debentures accurately calculated when they are issued at a discount?

A Purchase Consideration ÷ Face Value

B Face Value ÷ Discounted Issue Price

C Purchase Consideration ÷ Total Discount Amount

D Purchase Consideration ÷ (Face Value - Discount Amount)

💡 Short Explanation

Discount lowers issue price. Purchase consideration divided by issue price. Issue price = Face value – Discount.

✅ Correct Answer Explanation

When debentures are issued at discount, the effective issue price is: Face Value – Discount Therefore, the number of debentures is calculated as: Purchase Consideration ÷ (Face Value – Discount Amount) Hence, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Ignores discount effect.
Option B → Formula reversed.
Option C → Discount alone is irrelevant.

🎯 Strategy

Used

Formula Recognition

Application:

�� Use discounted issue price formula.

Final Logic:

�� Quantity depends on actual issue proceeds.

🧠 Memory Trick

"PC ÷ Discounted Price"

📚 Questions 11–20

11 A company determines its acquired net assets to be Rs 2,80,000. The negotiated purchase consideration is Rs 3,15,000. What is the exact amount of Goodwill to be recognized?

A Rs 35,000

B Rs 25,000

C Rs 15,000

D Rs 45,000

💡 Short Explanation

Purchase consideration exceeds net assets. Excess amount represents goodwill. Rs. 3,15,000 – Rs. 2,80,000 = Rs. 35,000.

✅ Correct Answer Explanation

Goodwill arises when the purchase consideration is greater than the net assets acquired. Goodwill = Purchase Consideration – Net Assets = Rs. 3,15,000 – Rs. 2,80,000 = Rs. 35,000 Therefore, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect subtraction.
Option C → Understated amount.
Option D → Excessively calculated.

🎯 Strategy

Used

Substitution

Application:

�� Apply goodwill formula directly.

Final Logic:

�� Excess consideration creates goodwill.

🧠 Memory Trick

"PC Greater = Goodwill"

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

12 Goodwill recognized during a business purchase through the issue of debentures is fundamentally treated in accounting as:

A A current asset

B An intangible non-current asset

C A fictitious asset

D A current liability

💡 Short Explanation

Goodwill has no physical existence. It provides long-term business value. Classified as intangible asset.

✅ Correct Answer Explanation

Goodwill represents reputation, customer loyalty, and business advantages. Since it lacks physical form but provides future economic benefits, it is classified as an intangible non-current asset. Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Goodwill is not current in nature.
Option C → Modern accounting does not treat it as fictitious.
Option D → It is not a liability.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Identify accounting classification of goodwill.

Final Logic:

�� Goodwill is long-term intangible benefit.

🧠 Memory Trick

"Goodwill = Intangible Value"

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

13 Nikhil Ltd. took over assets worth Rs 3,60,000 and creditors of Rs 1,00,000. The purchase consideration agreed was Rs 2,50,000. What is the value of the Capital Reserve?

A Rs 20,000

B Rs 30,000

C Rs 10,000

D Rs 50,000

💡 Short Explanation

Net assets = Assets – Liabilities. Rs. 3,60,000 – Rs. 1,00,000 = Rs. 2,60,000. Excess net assets over consideration = Rs. 10,000.

✅ Correct Answer Explanation

Net Assets: Rs. 3,60,000 – Rs. 1,00,000 = Rs. 2,60,000 Capital Reserve: Rs. 2,60,000 – Rs. 2,50,000 = Rs. 10,000 Since net assets exceed purchase consideration, Capital Reserve arises. Hence, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect calculation.
Option B → Overstated reserve.
Option D → Excessively calculated.

🎯 Strategy

Used

Substitution

Application:

�� Calculate net assets first.

Final Logic:

�� Excess net assets create capital reserve.

🧠 Memory Trick

"Net Assets Greater = Capital Reserve"

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

14 The Capital Reserve generated when the purchase consideration is lower than the net assets is strictly classified as a:

A Revenue Receipt

B Revenue Payment

C Capital Payment

D Capital Profit

💡 Short Explanation

Capital reserve arises from capital transaction. It is not operational income. Hence classified as capital profit.

✅ Correct Answer Explanation

Capital Reserve arising from business purchase represents gain on acquisition of net assets below their value. Such gain is capital in nature and therefore treated as Capital Profit. Hence, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Not revenue in nature.
Option B → Not payment.
Option C → It is profit, not payment.

🎯 Strategy

Used

Conceptual Matching

Application:

�� Identify nature of reserve.

Final Logic:

�� Capital reserve is capital gain.

🧠 Memory Trick

"Reserve from Purchase Gain"

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

15 When recording the journal entry for acquiring an entire business:
I. All acquired assets are debited individually at their agreed values.
II. Acquired liabilities are credited individually at their agreed values.

A Both I and II are true

B Only I is true

C Only II is true

D Neither is true

💡 Short Explanation

Assets increase through debit. Liabilities increase through credit. Individual agreed values are recorded.

✅ Correct Answer Explanation

When an entire business is acquired, all assets taken over are debited individually at agreed values, and liabilities assumed are credited individually at agreed values. Therefore, both statements are true and option A is correct.

❓ Why Other Options Are Incorrect

Option B → Liabilities are also credited.
Option C → Assets are also debited.
Option D → Both statements are correct.

🎯 Strategy

Used

Elimination

Application:

�� Verify journal treatment of acquisition.

Final Logic:

�� Business purchase records all assets and liabilities separately.

🧠 Memory Trick

"Assets Dr., Liabilities Cr."

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

16 Nikhil Ltd. bought a business for a consideration of Rs 3,07,200. It settled this by issuing 14% debentures of Rs 100 each at a 4% discount. Exactly how many debentures were issued?

A 3,000

B 3,200

C 3,500

D 2,600

💡 Short Explanation

Issue price = Rs. 96. Number = Rs. 3,07,200 ÷ 96. Total debentures = 3,200.

✅ Correct Answer Explanation

Issue price per debenture: Rs. 100 – 4% discount = Rs. 96 Number of debentures: Rs. 3,07,200 ÷ Rs. 96 = 3,200 debentures Hence, option B is correct.

❓ Why Other Options Are Incorrect

Option A → Understated quantity.
Option C → Excess quantity.
Option D → Incorrect division.

🎯 Strategy

Used

Substitution

Application:

�� Divide purchase consideration by issue price.

Final Logic:

�� Discount reduces effective issue price.

🧠 Memory Trick

"PC ÷ Discounted Price"

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

17 For settling a vendor's claim by issuing debentures purely at par, which of the following equations must hold true?

A Issue Price > Face Value

B Issue Price < Face Value

C Issue Price = Face Value

D Purchase Consideration = Face Value + Premium

💡 Short Explanation

At par means equality. No premium or discount exists. Face value equals issue price.

✅ Correct Answer Explanation

Debentures issued at par mean the issue price is exactly equal to the face value of the debentures. Therefore, option C is correct.

❓ Why Other Options Are Incorrect

Option A → Represents issue at premium.
Option B → Represents issue at discount.
Option D → Includes premium incorrectly.

🎯 Strategy

Used

Formula Recognition

Application:

�� Recall meaning of "at par."

Final Logic:

�� Equality defines par issue.

🧠 Memory Trick

"Par = Equal"

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

18 A company agreed to a purchase consideration of Rs 3,15,000. It issues debentures of Rs 100 each at a 5% premium to settle the claim. How much amount will be strictly credited to the Debentures Account?

A Rs 3,15,000

B Rs 2,80,000

C Rs 15,000

D Rs 3,00,000

💡 Short Explanation

Debentures A/c receives face value only. Premium credited separately. Rs. 3,15,000 ÷ 105 × 100 = Rs. 3,00,000.

✅ Correct Answer Explanation

Issue price per debenture = Rs. 105. Face value proportion: Rs. 3,15,000 × 100/105 = Rs. 3,00,000 Thus, Debentures A/c is credited with Rs. 3,00,000 while the premium portion is credited separately. Therefore, option D is correct.

❓ Why Other Options Are Incorrect

Option A → Includes premium also.
Option B → Incorrect calculation.
Option C → Represents premium only.

🎯 Strategy

Used

Substitution

Application:

�� Separate face value and premium.

Final Logic:

�� Debentures A/c contains nominal value only.

🧠 Memory Trick

"Debentures = Face Value Only"

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

📄 Passage

"When a company purchases assets from vendors and instead of making payment in cash issues debentures for consideration thereof, such issue of debentures is called debentures issued for consideration other than cash. In that case also, the debentures may be issued at par, at a premium or at a discount. The number of debentures issued is determined by dividing the purchase consideration by the issue price. Any fractional debenture is typically paid in cash."

Based on the provided passage, what specific mathematical operation determines the number of debentures issued to the vendor?

A Dividing the purchase consideration by the issue price

B Multiplying the purchase consideration by the face value

C Dividing the face value by the issue price

D Dividing the net assets by the face value

💡 Short Explanation

Passage directly provides formula. Purchase consideration divided by issue price. Result gives number of debentures.

✅ Correct Answer Explanation

The passage explicitly states that the number of debentures is determined by dividing the purchase consideration by the issue price. Therefore, option A is correct.

❓ Why Other Options Are Incorrect

Option B → Multiplication is incorrect.
Option C → Formula reversed.
Option D → Net assets are unrelated here.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Identify exact formula stated in passage.

Final Logic:

�� Passage directly provides the answer.

🧠 Memory Trick

"PC ÷ Issue Price"

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

📄 Passage

According to the passage, if the division operation results in a fractional debenture, how is it usually settled by the company?

A Rounded up to the next whole debenture

B Paid directly in cash

C Rounded down to the previous whole debenture

D Added to the Capital Reserve balance

💡 Short Explanation

Fractional debentures are avoided. Fraction value is settled separately. Cash payment resolves the difference.

✅ Correct Answer Explanation

The passage clearly states that any fractional debenture is typically settled through cash payment instead of issuing a fractional security. Therefore, option B is correct.

❓ Why Other Options Are Incorrect

Option A → No compulsory rounding up.
Option C → Fraction is not ignored.
Option D → Not transferred to reserve.

🎯 Strategy

Used

Contextual/Tonal Matching

Application:

�� Identify settlement method from passage.

Final Logic:

�� Passage explicitly mentions cash settlement.

🧠 Memory Trick

"Fraction = Cash Payment"

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

CUET UG Accountancy Booster Test 2 Special Issues of Debentures

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Answer Review