A-] FILL IN THE BLANKS

REDEMPTION OF PREFERENCE SHARES

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

2. Permission of court is necessary if refund is made to preference shareholders. - ​False

3. According to sec. 55 of the companies act, partly paid shares can be redeemed. - ​False

4. Redeemable Preference shares can be redeemed out of:

a) The sale proceeds of Investments
b) The proceeds of a fresh issue of shares
c) Securities premium reserve
d) The proceeds of issue of debentures

5. Partly paid preference shares cannot be redeemed. - ​True

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

16. Which of the following statements is false?

a) A company can redeem its preference shares
b) Preference shareholders are creditors of a company
c) The part of the authorized capital which can be called up only in the event of liquidation of a company
is called reserve capital
d) Capital redemption reserve can be utilized for issuing fully paid bonus shares

17. Which of the following statements is false?

a) Capital redemption reserve cannot be used for writing o miscellaneous expenses and losses
b) Capital profit realized in cash can be used for payment of dividend
c) Reserves created by revaluation of fixed assets are not permitted to be capitalized
d) Dividend is payable on the calls paid in advance by shareholders

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

20. Unclaimed dividends account is a liability of the company - ​True

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

25. Partly paid shares can be made fully paid by capitalizing

a) General reserve
b) Securities Premium
c) Capital Redemption Reserve
d) All of the above
26. The company has 2,500, 11% redeemable preference shares of Rs.100 each. These shares were due to be
redeemed at a premium of 10%. The company has the following profits:
Profit prior to incorporate = Rs.40,000; Capital reserve = Rs.40,000; Securities premium = Rs.20,000; General
Reserve = Rs.85,000; Profit and loss a/c = Rs.80,000. As the divisible profits income inadequate, the company
issued the number of equity shares of Rs.10 each at a discount of 10%.
What were the numbers of shares issued?
(a) 10,000 Equity Shares
(b) 9,000 Equity Shares
(c) 8,000 Equity Shares
(d) 7,500 Equity Shares
(e) 7,000 Equity Shares

27. Bonus shares cannot be issued by capitalizing

a) Revaluation reserve
b) Capital Reserve
c) Securities premium
d) General Reserve

28. The reserve which cannot be transferred to Capital Redemption Reserve

a) Securities premium A/c
b) Revaluation Reserve
c) Profit prior to incorporation
d) All of the above

29. A company can issue

a) Only redeemable preference shares
b) only Deferred shares
c) Only irredeemable preference shares
d) All of the above

30. Capital Reserve is

a) Current year’s profit
b) Past accumulated profits
c) Capital profit
d) Divisible profit
31. Preference shareholders have voting rights. ​False

32. Preference shares may be convertible into equity shares. ​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

6. Debentures can be redeemed out of:

(a) Profit
(b) Capital
(c) Provision
(d) All of the above

7. Premium on redemption of debentures is a :

(a) Personal A/c
(b) Real A/c
(c) Nominal A/c
(d) Suspense A/c

8. Premium on redemption of debentures is generally provided at the time of ……………

(a) Issue of debentures
(b) Redemption of debentures
(c) Writing off
(d) After 10 years

9. Debentures cannot be redeemed at:

(a) Par
(b) Premium
(c) Discount
(d) More than 10% premium

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

11. Sources of finance of the redemption of debentures are:

(a) Redemption out of profits
(b) Redemption out of capital
(c) The proceeds from fresh issue of shares/debentures
(d) All the above

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

15. Profit on sale of Sinking Fund Investment is transferred to:

(a) Profit & Loss Account
(b) General Reserve
(c) Sinking Fund Account
(d) Capital Reserve

16. Premium on Redemption of Debentures A/c is:

(a) Asset
(b) Expenses
(c) Liability
(d) Revenue

17. Interest on sinking fund investment is credited to :

(a) Profit & Loss A/c
(b) Sinking Fund A/c
(c) General Reserve A/c
(d) Sinking Fund Investment A/c

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

19. Own debentures are those debentures of the company which ?

(a) The company allots to its own promoters
(b) The company allots to its directors
(c) The company purchases from the markets and hold them as investments
(d) None of these

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

23. Profit on redemption of debentures transferred to which account ?

(a) Capital Reserve Account
(b) Sinking Fund Account
(c) General Reserve Account
(d) Profit & Loss Account
24. Profit on cancellation of own debentures is :
(a) Revenue Profit
(b) Capital Profit
(c) Operating Profit
(d) Trading Profit

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%

26. Premium on Redemption of Debentures A/c is in the nature of:

(a) Personal A/c
(b) Real A/c
(c) Nominal A/c
(d) None of these

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

29. Which of the following statements is true?

a. A debenture holder is an owner of the company
b. A debenture holder can get his money back only on the liquidation of the company
c. A debenture issued at a discount can be redeemed at a premium
d. A debenture holder receives interest only in the event of profits

30. Which of the following is False:

a. Debenture is a written instrument acknowledging a debt under the common seal of the company.
b. Debenture is a part of owned capital.
c. The payment of interest on debentures is a charge on the profits of the company.
d. Redeemable debentures are those debentures, which are payable on the expiry of the specific period.

31. Which of the following statement is true:

a. The debentures cannot be issued at a discount of more than 10% of the face value.
b. Perpetual debentures are also known as irredeemable debentures.
c. Debentures cannot be converted into shares.
d. Debentures cannot be issued at a premium.

32. Premium on redemption of debentures account is shown under the ‘Securities Premium’ in the Balance Sheet. - ​False

33. Loss on issue of debentures account is a revenue loss. - ​ False

34. Which of the following statements is false?

a. A company can issue convertible debentures
b. Debentures cannot be secured
c. A company can issue redeemable debentures
d. Debentures have no right to participate in profits over and above their fixed interest
35. Debenture premium cannot be used to _____.
a. Write off the discount on issue of shares or debentures
b. Write off the premium on redemption of shares or debentures
c. Pay dividends
d. Write off capital loss
36. Which of the following statements is false?
a. At maturity, debenture holders get back their money as per the terms and conditions of redemption
b. Debentures can be forfeited for non payment of call money
c. In company’s balance sheet, debentures are shown under secured loans
d. Interest on debentures is charged against profits

37. As per the Companies Act, “Interest accrued and due on debentures” should be shown Under Debentures. - ​True

38. Which of the following is false?

a. Equity is owners’ stake and the debenture is a debt
b. Rate of interest on debentures is fixed
c. Debenture holders get preferential treatment over the equity holders at the time of liquidation
d. Interest on debentures is an appropriation of profits.

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

42. Own debentures are those debentures of the company which:

a. The company allots to its own promoters,
b. The company allots to its Director,
c. The company purchases from the market and keeps them as investments.

43. Premium on redemption of debentures is transferred to the sinking fund. - ​True

44. Profit on cancellation of own debentures is transferred to :

a. Profit and loss appropriation a/c,
b. Debenture redemption reserve,
c. Capital reserve.

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.