REDEMPTION OF SHARES & DEBENTURES MCQs
REDEMPTION OF SHARES & DEBENTURES MCQs
1. According to sec. 66 of the companies act, a company is not allowed to return to its shareholders the share
money without the permission of the court. - True
3. According to sec. 55 of the companies act, partly paid shares can be redeemed. - False
6. Which of the following statements is NOT TRUE with regard to redemption of Preference shares
a) Partly paid shares cannot be redeemed
b) The redemption of Preference shares shall be taken as reduction of company’s
authorized share capital
c) When shares are issued for redemption in future, it will not be treated as increase in capital
d) Preference shares can be redeemed either out of the profit by capitalization or amount of fresh issue
of shares.
7. When Redeemable Preference shares are due for redemption, the entry passed is
a) Debit redeemable Preference Share capital a/c; Credit cash a/c
b) Debit Redeemable Preference share capital a/c; credit Preference shareholders a/c
c) Debit preference shareholders a/c; credit cash a/c
d) Debit preference shareholders a/c; credit capital reduction a/c
e) Debit redeemable preference share capital a/c; credit capital reduction a/c
8. Preference shares can be redeemed out of the proceeds of fresh issue of debentures. - False
9. Which of the following can be utilized for the redemption of preference shares of a company out of profit:
a) Shares forfeited account
b) Development rebate reserve account
c) Capital redemption reserve account
d) Securities premium reserve account
e) Dividend equalisation reserve
10. Which of the following cannot be utilized for the redemption of preference shares of a company:
a) proceeds of fresh issue of shares
b) General Reserve
c) Profit and Loss Account
d) Dividend equalization reserve
e) Securities premium on fresh issue of shares
11. If preference shares are redeemed out of distributable profits and amount equal to the face value of shares
redeemed is transferred to Capital Redemption Reserve account (CRR).
12. CRR can be used for issuing fully paid bonus shares to the existing shareholders - True
13. CRR can be reduced in accordance with the sanction of the court relating to reduction of share capital. True
14. Redemption of share capital can be regarded as reduction of the authorised share capital of the company. False
15. Which of the following statements is false:
a) Redeemable preference share can be issued, if authorized by the articles of association
b) The bonus issue can be made out of securities premium collected only in cash.
c) Redeemable preference share can be redeemed only when they are fully paid.
d) Premium payable on redemption of preference share can be provided by the company's securities
premium.
e) Redeemable preference shares can be redeemed only out of profits of the company
18. According to Sec. 55 A company cannot issue redeemable preference shares for a period exceeding
_____________.
a) 6 years b) 7 years c) 8 years d) 20 years.
19. Which of the following cannot be used for the purpose of creation of capital redemption reserve account?
a) Profit and loss account (credit balance)
b) General reserve account
c) Dividend equalization reserve account
d) Unclaimed dividends account
21. The Capital Redemption reserve is created for the following reasons:
a) To Maintain the capital intact
b) To safeguard the interest company’s creditors
c) Both of the above
d) None of the above
22. Which of the following accounts can be transferred to a capital redemption reserve account?
a) General reserve account
b) Forfeited shares account
c) Profit prior to incorporation
d) Securities premium account
23. According to sec. 55 (1)(c) of the companies act, a company can pay back share capital which is in excess of need
if:
a) Authorised by articles
b) Confirmation of the court
c) Special resolution is passed to that effect
d) All of the above
24. According to sec. 100 of the companies act, a company is not allowed to return to its shareholders the share
money without the permission of the court. - True
REDEMPTION OF DEBENTURES
1. According to SEBI guidelines, a Company will have to create debenture redemption reserve equivalent to the
amount of the following percentage of debenture issued:
(a) 50%
(b) 25%
(c) 70%
(d) 100%
2. When all debentures are redeemed, balance in the Debenture Redemption Fund Account is transferred to:
(a) Capital Reserve
(b) General Reserve
(c) Profit & Loss Appropriation A/c
(d) None of these
3. The balance of ‘Sinking Fund Account’ after the redemption of debentures is transferred to :
(a) Profit & Loss Account
(b) Profit & Loss Appropriation Account
(c) General Reserve Account
(d) Sinking Fund Account
4. Profit on cancellation of own debentures is transferred to:
(a) Profit & Loss Account
(b) Profit & Loss Appropriation Account
(c) General Reserve Account
(d) Capital Reserve Account
5. If debenture of ₹ 1,00,000 were issued for a discount of ₹ 10,000, which are redeemable after four years. Then
amount of discount to be written off from P. & L. Account each year is :
(a) ₹ 3,000
(b) ₹ 4,000
(c) ₹ 2,500
(d) ₹ 5,000
10. If debentures purchased in open market are not immediately cancelled, they are treated as :
(a) Current Assets
(b) Current Liabilities
(c) Investment
(d) Capital
12. A company issued 1,000, 12% debentures of ₹ 100 each at 10% premium. 12% stand for:
(a) Rate of dividend
(b) Rate of Tax
(c) Rate of interest
(d) None of these
13. A company should transfer to Debenture Redemption Reserve A/c at least what percent of the amount of
debentures issued before the commencement of redemption of debentures-
(a) 50%
(b) 25%
(c) 15%
(d) 100%
14. If redemption of debentures is made by conversion method, the amount to be transferred to ‘Debenture
Redemption Reserve Account’ will be equal to ______ percent of converted amount.
(a) 40
(b) 50
(c) 60
(d) Not required
18. When debentures are issued at par and are redeemable at a premium, the loss on such an issue is debited to :
(a) Profit & Loss A/c
(b) Debenture Application and Allotment A/c
(c) Loss on Issue of Debentures A/c
(d) Premium on Redemption A/c
20. When debentures are redeemed out of profits, an equivalent amount is transferred to :
(a) General Reserve
(b) Debenture Redemption Reserve
(c) Capital Reserve
(d) Profit & Loss A/c
21. Profit on sale of debentures redemption fund investment in the rst instance in credited to :
(a) Debenture Redemption Fund A/c
(b) Profit & Loss Appropriation A/c
(c) General Reserve A/c
(d) Sinking Fund A/c
22. According to SEBI guidelines what percentage of the amount of debentures must be transferred to Debenture
Redemption Reserve, before the commencement of redemptionṣ of debentures, in case of convertible
debentures ?
(a) 25%
(b) 50%
(c) 100%
(d) zero
25. Every company required to create DRR shall on or before the 30th April of each year, deposit or invest, a sum
which shall not be less than ______ of the amount of its debentures maturing (to be redeemed) during the year
ending on 31st March of the next year.)
(a) 10%
(b) 15%
(c) 25%
(d) 50%
27. Debenture is a :
(a) Loan certificate
(b) Cash certificate
(c) Credit certificate
(d) None of these
28. A Company issuing debentures with a maturity period of not more than …………….. need not create Debenture
Redemption Reserve
(a)2 months
(b)6 months
(c)12 months
(d)18 months
32. Premium on redemption of debentures account is shown under the ‘Securities Premium’ in the Balance Sheet. - False
37. As per the Companies Act, “Interest accrued and due on debentures” should be shown Under Debentures. - True
39. Which of the following is not true about Debenture redemption reserve(DRR):
a. DDR created @ 50% of the amount of debentures issued before commencement of redemption.
b. Withdrawal from DRR can be made only after 10% of debenture liability has been redeemed.
c. DRR is required in case of Fully convertible debenture.
d. DRR is not required in case of debentures with a maturity period of 18 months or less.
40. When all the debentures are redeemed, balance in the debentures redemption fund account is transferred to :
a. Capital reserve,
b. General reserve
c. Profits and loss appropriation account.
41. Which of the following statements are false if debentures redeemed out of capital:
a. DRR is not created if debentures are redeemed out of capital
b. Nominal value of debentures redeemed is not transferred to DRR or General Reserve.
c. Debentures account is debited and bank account is credited
45. When debentures are redeemed out of profits, an equal amount is transferred to :
a. General reserve,
b. Debenture redemption reserve,
c. Capital reserve.
46. Profit on sale of debenture redemption fund investments in the rst instance is credited to :
a. Debenture redemption fund account,
b. Profit and loss appropriation account,
c. General reserve account
47. The balance of sinking fund investment account after the realisation of investments is transferred to:
a. Profit and loss account,
b. Debentures account,
c. Sinking fund account.