CUET UG Accountancy Booster Test 2 Types of Debentures -

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CUET UG Accountancy Booster Test 1 Types of Debentures

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 1 Types of Debentures

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QUESTION 1 OF 20

Company XYZ defaults on its payments. The debentureholders enforce their legal rights and successfully recover their dues specifically from the factory building of the company. What classification of debentures did they hold?

Answer Review

1 Company XYZ defaults on its payments. The debentureholders enforce their legal rights and successfully recover their dues specifically from the factory building of the company. What classification of debentures did they hold?

A Bearer Debentures

B Secured Debentures

C Unsecured Debentures

D Convertible Debentures

💡 Short Explanation

Recovery was made from company assets. Secured debentures create asset charge. Factory building acted as security.

✅ Correct Answer Explanation

Secured debentures are backed by specific assets of the company. Since debentureholders recovered dues from the factory building, the debentures were secured. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Bearer relates to transferability.
Option C → Unsecured debentures lack asset backing.
Option D → Convertibility unrelated to recovery rights.

🎯 Strategy

Used

Case-Based Identification

Application:

Asset-backed recovery indicates secured status.

Final Logic:

Recovery through assets = secured debenture.

🧠 Memory Trick

"Security Means Asset Protection"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Secured Debentures – Page X

2 Consider the following statements regarding Unsecured Debentures:
I. They have a specific fixed charge on the company's real estate.
II. These kinds of debentures are the most commonly issued debentures in the modern market.

A Only I is correct

B Only II is correct

C Both I and II are correct

D Neither I nor II are correct

💡 Short Explanation

Unsecured debentures lack fixed charge. They are not necessarily most common. Therefore both statements are incorrect.

✅ Correct Answer Explanation

Statement I is false because unsecured debentures do not have a specific fixed charge. Statement II is also false because secured debentures are more common in practice. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Statement I is false.
Option B → Statement II also false.
Option C → Both statements incorrect.

🎯 Strategy

Used

Statement Verification

Application:

Characteristics of unsecured debentures evaluated.

Final Logic:

No fixed security exists in unsecured debentures.

🧠 Memory Trick

"Unsecured = No Charge"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Unsecured Debentures – Page X

3 When a fixed charge is created, which specific type of asset is typically utilized?

A Assets meant directly for immediate sale

B Assets that are entirely unsecured

C Assets held by a company for use in operations and not meant for sale

D Only the cash and cash equivalents of the company

💡 Short Explanation

Fixed charge applies to operational assets. Such assets are stable and identifiable. Inventory for sale usually excluded.

✅ Correct Answer Explanation

A fixed charge is created on specific operational assets like land, building, or machinery not meant for immediate sale. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Inventory generally not fixed-charge asset.
Option B → Fixed charge itself creates security.
Option D → Cash alone not typical fixed-charge base.

🎯 Strategy

Used

Conceptual Understanding

Application:

Nature of fixed-charge assets identified.

Final Logic:

Specific operational assets support fixed charge.

🧠 Memory Trick

"Fixed Charge = Fixed Assets"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Fixed Charge – Page X

4 A floating charge differs from a fixed charge because it involves:

A All general assets excluding those assigned to secured creditors

B Specific plant and machinery only

C Only the registered debenture forms

D Only the assets that are meant for immediate sale

💡 Short Explanation

Floating charge covers general assets. It is broader than fixed charge. Applies until crystallization.

✅ Correct Answer Explanation

Floating charge extends over general assets of the company excluding specifically charged assets. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Specific assets relate to fixed charge.
Option C → Registration unrelated.
Option D → Floating charge not limited to sale assets.

🎯 Strategy

Used

Definition Identification

Application:

Floating charge characteristics analyzed.

Final Logic:

Floating charge covers general asset pool.

🧠 Memory Trick

"Floating = General Assets"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Floating Charge – Page X

5 A company issues Rs. 5,00,000 redeemable debentures payable in 5 equal instalments over its life. How much principal amount is redeemed in each individual instalment?

A Rs. 50,000

B Rs. 1,00,000

C Rs. 2,50,000

D Rs. 5,00,000

💡 Short Explanation

Total debenture value divided equally. Five instalments specified. Equal redemption each period.

✅ Correct Answer Explanation

Calculation: 500000 ÷ 5 = 100000 Thus, each instalment redeems Rs. 1,00,000. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Half of required amount.
Option C → Too high for equal instalment.
Option D → Represents full amount.

🎯 Strategy

Used

Substitution

Application:

Total value divided by number of instalments.

Final Logic:

5,00,000 ÷ 5 = 1,00,000.

🧠 Memory Trick

"Equal Instalments = Equal Division"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Redeemable Debentures – Page X

6 Assertion (A): Irredeemable debentures are known as Perpetual Debentures.
Reason (R): The company gives a strict undertaking to repay them within exactly 10 years.

A Both A and R are true

B Both A and R are false

C A is true, R is false

D A is false, R is true

💡 Short Explanation

Perpetual debentures lack fixed maturity. No strict 10-year repayment promise exists. Therefore Reason is false.

✅ Correct Answer Explanation

Assertion is true because irredeemable debentures are also called perpetual debentures. Reason is false because they do not carry fixed repayment undertaking within 10 years. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Reason incorrect.
Option B → Assertion true.
Option D → Assertion not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Perpetual nature of irredeemable debentures examined.

Final Logic:

No fixed maturity defines irredeemable debentures.

🧠 Memory Trick

"Perpetual = No Fixed Redemption"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Irredeemable Debentures – Page X

7 What is the logical sequence of actions for exercising convertibility?
1. Debentures are converted into equity shares or other securities
2. Debentures are originally issued with a convertibility clause
3. The conversion option is exercised by the company or debenture holders

A 1, 3, 2

B 3, 2, 1

C 2, 1, 3

D 2, 3, 1

💡 Short Explanation

Convertibility clause included first. Option exercised later. Actual conversion occurs finally.

✅ Correct Answer Explanation

Correct sequence: 1. Debentures issued with convertibility clause 2. Conversion option exercised 3. Debentures converted into shares Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Conversion cannot occur first.
Option B → Clause must exist before exercise.
Option C → Exercise must occur before conversion.

🎯 Strategy

Used

Sequential Logic

Application:

Convertible debenture process arranged chronologically.

Final Logic:

Issue → Exercise → Convert.

🧠 Memory Trick

"Clause, Choice, Conversion"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Convertible Debentures – Page X

8 Why do Non-Convertible Debentures generally represent a permanent debt liability until redeemed, unlike Convertible Debentures?

A Because they cannot be converted into shares or any other securities

B Because they automatically become zero coupon bonds

C Because they are perpetually irredeemable

D Because they only have a floating interest rate

💡 Short Explanation

Non-convertible debentures remain debt. No conversion into equity possible. Liability continues until redemption.

✅ Correct Answer Explanation

Non-convertible debentures cannot transform into shares, so they continue as debt liability until redemption. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Zero coupon unrelated.
Option C → They may still be redeemable.
Option D → Interest type irrelevant.

🎯 Strategy

Used

Conceptual Understanding

Application:

Difference between convertible and non-convertible examined.

Final Logic:

Absence of conversion keeps debt intact.

🧠 Memory Trick

"No Conversion = Continued Debt"

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

9 Match the debenture types to their functional descriptions:

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

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

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

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

💡 Short Explanation

Irredeemable debentures repay on winding-up. Unsecured debentures lack specific charge. Fully convertible debentures become shares completely.

✅ Correct Answer Explanation

Correct matching: 1. Irredeemable Debentures → b. Repayable on winding-up 2. Unsecured Debentures → d. No specific charge 3. Floating Charge → a. General assets excluding assigned ones 4. Fully Convertible Debentures → c. Entirely exchanged for shares Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Multiple mismatches occur.
Option B → Floating charge incorrectly paired.
Option D → Irredeemable debentures mismatched.

🎯 Strategy

Used

Option Grouping

Application:

Debenture classifications matched carefully.

Final Logic:

Only Option C matches all correctly.

🧠 Memory Trick

"Floating-General, Fully-Convertible"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Classification – Page X

10 Which statements correctly define Partly Convertible Debentures?
I. The entire debenture is strictly non-convertible under all circumstances.
II. Only a fraction or part of the debenture can be converted into shares.

A Only I is true

B Only II is true

C Both I and II are true

D Neither I nor II is true

💡 Short Explanation

Partly convertible means partial conversion. Entire debenture is not fully non-convertible. Therefore Statement II is correct.

✅ Correct Answer Explanation

Statement I is false because partly convertible debentures allow partial conversion. Statement II is correct because only a portion converts into shares. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Statement I incorrect.
Option C → Statement I false.
Option D → Statement II valid.

🎯 Strategy

Used

Statement Verification

Application:

Meaning of partly convertible debentures analyzed.

Final Logic:

Partial conversion defines partly convertible debentures.

🧠 Memory Trick

"Partly = Partial Conversion"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Partly Convertible – Page X

11 A specific coupon rate that is fixed on a debenture means:

A It is issued with a specified, unchanging rate of interest

B It is issued without any interest

C It is exclusively transferred by delivery

D It is an irredeemable security

💡 Short Explanation

Coupon rate refers to interest rate. Fixed coupon remains unchanged. Investors receive stable returns.

✅ Correct Answer Explanation

Fixed coupon rate debentures carry a predetermined rate of interest throughout their life. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Zero coupon debentures carry no interest.
Option C → Transfer method unrelated.
Option D → Redemption unrelated.

🎯 Strategy

Used

Definition Recall

Application:

Meaning of fixed coupon rate identified.

Final Logic:

Fixed coupon = fixed interest.

🧠 Memory Trick

"Coupon Means Interest"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Fixed Coupon Rate – Page X

12 Investor M holds debentures where the interest rate changes periodically based on the prevailing bank rate. These debentures are classified as:

A Zero Coupon Rate Debentures

B Fixed Coupon Rate Debentures

C Partly Convertible Debentures

D Floating Coupon Rate Debentures

💡 Short Explanation

Interest varies with benchmark rates. Bank rate influences returns. Therefore coupon is floating.

✅ Correct Answer Explanation

Floating coupon rate debentures carry variable interest linked to benchmark rates like the bank rate. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Zero coupon pays no regular interest.
Option B → Fixed coupon remains unchanged.
Option C → Convertibility unrelated.

🎯 Strategy

Used

Case-Based Identification

Application:

Variable interest feature analyzed.

Final Logic:

Changing interest = floating coupon.

🧠 Memory Trick

"Floating Changes with Market"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Floating Coupon Rate – Page X

13 How is the investor compensated in a Zero Coupon Rate Debenture if there is no specific rate of interest applied?

A By converting the debenture into equity within one month

B By providing a fixed charge on floating assets

C By issuing the debenture at a substantial discount

D By paying a floating interest rate

💡 Short Explanation

Zero coupon debentures pay no periodic interest. Investor gains through discount difference. Redemption value exceeds issue price.

✅ Correct Answer Explanation

Zero coupon debentures compensate investors through issue at substantial discount rather than periodic interest payments. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Conversion unrelated.
Option B → Security not compensation method.
Option D → Floating interest absent.

🎯 Strategy

Used

Conceptual Understanding

Application:

Compensation mechanism of zero coupon debentures analyzed.

Final Logic:

Discount replaces periodic interest.

🧠 Memory Trick

"No Coupon, Big Discount"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Zero Coupon Debentures – Page X

14 A Zero Coupon Debenture with a nominal value of Rs. 1,000 is issued at a discount issue price of Rs. 800. What is the treated amount of interest related to its duration?

A Rs. 200

B Rs. 800

C Rs. 1,000

D Rs. 1,800

💡 Short Explanation

Investor gain equals discount amount. Difference between nominal and issue price. This difference acts as interest.

✅ Correct Answer Explanation

Calculation: 1000 - 800 = 200 Thus, Rs. 200 is treated as interest over the duration. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Represents issue price only.
Option C → Represents nominal value.
Option D → Incorrect addition.

🎯 Strategy

Used

Substitution

Application:

Nominal value minus issue price.

Final Logic:

Discount amount represents effective interest.

🧠 Memory Trick

"Nominal – Issue Price"

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

15 For registered debentures, where are the names, addresses, and holding particulars legally recorded?

A On the interest coupon attached to the debenture

B In a register kept by the company

C With the central banking authority

D On the bearer's transfer deed

💡 Short Explanation

Registered debentures require ownership records. Company maintains official register. Holder details legally documented there.

✅ Correct Answer Explanation

Registered debenture holders' details are maintained in the company's register of debenture holders. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Coupons only relate to interest collection.
Option C → Central bank not responsible.
Option D → Bearer debentures transfer differently.

🎯 Strategy

Used

Definition Identification

Application:

Registration process analyzed.

Final Logic:

Ownership details maintained by company.

🧠 Memory Trick

"Registered = Recorded"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Registered Debentures – Page X

16 Match the debenture characteristics:

List 1	List 2
1. Coupon rate	a. Specified rate of interest
2. Registered Debentures	b. Executed by a regular transfer deed
3. Bearer Debentures	c. Transferred by way of delivery
4. Fixed Charge	d. Created on specific operational assets

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

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

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

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

💡 Short Explanation

Coupon rate means fixed interest. Registered debentures need transfer deed. Bearer debentures transfer by delivery.

✅ Correct Answer Explanation

Correct matching: 1. Coupon rate → d. Specified rate of interest 2. Registered Debentures → a. Executed by transfer deed 3. Bearer Debentures → b. Transfer by delivery 4. Fixed Charge → c. Created on operational assets Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Multiple mismatches.
Option B → Registered debentures mismatched.
Option C → Fixed charge incorrectly paired.

🎯 Strategy

Used

Option Grouping

Application:

Debenture characteristics matched carefully.

Final Logic:

Only Option D is fully correct.

🧠 Memory Trick

"Bearer by Delivery"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Registration & Transfer – Page X

17 Assertion (A): Registered debentures require the execution of a regular transfer deed.
Reason (R): Bearer debentures can be transferred by way of delivery.

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, R is false

D A is false, R is true

💡 Short Explanation

Registered debentures require formal transfer. Bearer debentures transfer by delivery. Both are true but independent facts.

✅ Correct Answer Explanation

Assertion is true because registered debentures need transfer deed execution. Reason is also true because bearer debentures transfer by delivery. However, the Reason does not explain the Assertion. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Reason does not explain assertion.
Option C → Reason is true.
Option D → Assertion is true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Transfer methods of different debenture types compared.

Final Logic:

Both facts are true but unrelated as explanation.

🧠 Memory Trick

"Registered = Deed; Bearer = Delivery"

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

18 Select the correct statement(s) regarding transfer by delivery:
I. It strictly applies to bearer debentures.
II. The company keeps a detailed record of the transfer.

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

Bearer debentures transfer by delivery. Company usually keeps no transfer record. Therefore Statement II is false.

✅ Correct Answer Explanation

Statement I is correct because transfer by delivery applies to bearer debentures. Statement II is false because ownership changes without company registration. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement II incorrect.
Option C → Statement II false.
Option D → Statement I valid.

🎯 Strategy

Used

Statement Verification

Application:

Bearer debenture transfer system analyzed.

Final Logic:

Delivery transfer avoids registration process.

🧠 Memory Trick

"Bearer = No Record"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Transfer by Delivery – Page X

📄 Passage

"Debentures can be uniquely classified by their registration process into registered and bearer debentures. Registered debentures require formal documentation like a transfer deed for any change of ownership. In contrast, bearer debentures change hands effortlessly by mere delivery. Consequently, companies may combine different traits, creating combined types of debentures, such as a secured, bearer debenture, bridging flexibility with asset backing."

According to the passage, the classification into registered and bearer is based on what basis of classification?

A Coupon Rate

B Tenure

C Registration process

D Convertibility

💡 Short Explanation

Registered and bearer debentures differ by ownership recording. The passage directly mentions registration process. Hence classification is based on registration.

✅ Correct Answer Explanation

The passage clearly states that debentures are classified into registered and bearer debentures on the basis of their registration process. Registered debentures require formal documentation and company records, whereas bearer debentures transfer by delivery. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Coupon rate relates to interest.
Option B → Tenure relates to repayment period.
Option D → Convertibility relates to share conversion.

🎯 Strategy

Used

Passage-Based Identification

Application:

Classification basis directly identified from passage.

Final Logic:

Registration procedure determines this classification.

🧠 Memory Trick

"Registered vs Bearer = Registration Basis"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Basis of Classification – Page X

📄 Passage

What specific example of a "combined type" is given in the passage?

A Unsecured, floating charge

B Zero-coupon, redeemable

C Partly convertible, registered

D Secured, bearer debenture

💡 Short Explanation

Combined types merge multiple features. Passage explicitly gives secured bearer debenture. It combines flexibility and security.

✅ Correct Answer Explanation

The passage specifically mentions a "secured, bearer debenture" as an example of a combined type of debenture. It combines: Security backing, and Easy transferability by delivery. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Not mentioned in passage.
Option B → Not given as example.
Option C → Also not mentioned.

🎯 Strategy

Used

Passage-Based Identification

Application:

Specific example extracted directly from passage.

Final Logic:

The passage explicitly names secured bearer debenture.

🧠 Memory Trick

"Combined = Multiple Features Together"

📚 Class XII – Accountancy – Chapter: Issue and Redemption of Debentures – Topic: Combined Types – Page X

CUET UG Accountancy Booster Test 1 Types of Debentures

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