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False

Explanation: The acknowledgement of debt under the common seal of a company is termed as debenture. Debentures carry a fixed rate of interest that is a charge against company profits. Debentures are paid back after the expiry of the specified term for which they were issued.

Redeemable debentures of which the amount is repaid within specific period.

Explanation: Debentures, on which the amount is to be paid back after a specified period of time, as per the terms of the issue, are known as redeemable debentures. They can only be redeemed after the expiry of a specified time period.

Issue of debentures at premium

Explanation: When debentures are issued at a price more than their face value, it is known as ‘issue of debentures at premium’. For example, when a debenture of face value Rs 10 is issued at Rs 12, it is issued at a premium of Rs 2. The premium is credited to Securities Premium Account.

False

Explanation: Unsecured debentures are issued without any security or charge, whereas secured debentures are issued with security or charge (floating or fixed) on the assets of a company. Therefore, secured debentures are more secure because if a company defaults in paying interest, the debenture-holders may sell off the assets in order to recover their dues.

Debentures are debt funds issued in the form of certificate under the common seal of a company. The certificate contains the details about rate of interest for the specified period, repayment of principle and the schedule of interest payments.

True

Explanation: Debentures are issued at a fixed rate of interest with payment of interest at regular intervals. However, repayment of principal amount is made only after the expiry of a specified period.

False

Explanation: Debenture-holders are the creditors of a company. They get interest at a fixed rate, irrespective of whether the company makes profit or not. Unlike shareholders, they are not the owners of the company.

The capital of a company is divided into small units of a fixed amount. These units are called shares. There are two types 

1. Preference shares and 

2. Equity shares.

When excess application money is adjusted towards allotment it is called as Pro-rata allotment.

The correct answer is : (c) three

Bearer debentures

Explanation: Debentures that are transferable by mere delivery are known as bearer debentures. The names and addresses of the holders of such debentures are not registered with the company. Interest on these debentures is paid only to those holders who produce interest coupons attached with such debentures.

Its nature is revenue expenditure.

Unsecured debentures which are not secured against any charge on asset of the company.

Explanation: The debentures that are not secured by any security or do not have a charge on the assets of a company are known as unsecured or naked debentures.

When the number of shares applied for is more than the number of shares offered for a subscription it is said to be oversubscription.

The directors of a company have an authority of reissue of shares once forfeited by them due to non – payment of calls. They can reissue the forfeited shares at par, at premium or at discount. When forfeited shares are reissued at a premium, the amount of such premium will be credited to securities premium. If the reissue price is more than the amount unpaid of forfeited shares it results in profit and is transferred to capital reserve account.

The interest on debentures is transferred to Profit and Loss A/c.

Explanation: Interest on debentures is an expense for a company. Debenture-holders are the creditors of the company and are paid a fixed rate of interest every year till redemption. Therefore, the interest expense is a charge against the profits and is debited to the Profit and Loss Account.

There should be a time gap of one month between two calls.

The excess amount paid over the called up value of a share is known as calls – in – advance. It is the excess money paid on application or allotment or calls. Such excess amount can be returned or adjusted towards future payment. If the company decides to adjust such amount towards future payment, the excess amount is transferred to a separate account called calls-in advance account.

The correct answer is : (b) Owners

When a shareholder defaults in making payment of allotment/call money, the shares may be forfeited. On forfeiture, the share allotment is canceled and to that extent, paid-up share capital reduced.

Reserve Capital can be issued at the time of Winding-up.

Capital Reserve represent Capital profit.

The debenture holder is creditor of the company.

Explanation: Debentures are debt funds issued under the common seal of a company. These are issued for a specified period of time with a fixed rate of interest. Debenture-holders are regarded as the creditors of the company, as they have lent the amount to the company as a loan.

According to Section 52(2) of Companies Act 2013. Securities Premium Reserve can be used. 

1. To issue fully paid-up bonus shares to the shareholders. 

2. To write off preliminary expenses of the companies. 

3. To write off the commission paid or discount/exp on issue of shares/debentures. 

4. To pay premium on the redemption of preference shares or debentures of the company.

(b) Cr to Calls – in – advance A/c

When a company issues shares at a price more than face value, the shares are said to be issued at premium. The excess is called as premium amount and is transferred to securities premium account. It is shown under “reserves and surplus” as a separate head in the note to accounts to the balance sheet.

(b) Liability

Debentures that are transferable by mere delivery are known as bearer debentures. The name and address of the holder of a bearer debenture is not registered with the company. Interest on such debentures is paid only to those holders who produce interest coupons attached with these debentures.

When debentures are issued at a price below their face value, it is known as ‘issue of debentures at discount’. ‘Redemption of debentures at premium’ implies that such debentures will be paid off a redemption price that is more than its face value. For example, a debenture with face value of Rs 10, issued at Rs 9 (issued at discount of Re 1) and redeemable at Rs 12 (redeemed at a premium of Rs 2).

Debentures can be issued for cash or for consideration other than cash. When debentures are issued to the vendors for purchase of assets, it is known as ‘issue of debentures for consideration other than cash’. In other words, vendors are issued debentures for the amount due rather than making payment in cash. Such an issue can be made at a discount, at par or at a premium.

(b) meeting the cost of issue of shares

(c) Existing Shareholders

company may issue shares for consideration other than cash when the company acquires fixed assets such as land, building, and machinery, etc. A company may also issue shares as consideration for the purchase of a business, to promotors for their services, and to brokers and underwriters for their commission.

Nominal value of shares allotted to the public is called subscribed capital. 

Explanation: Shares applied by the public and allotted to the public by a company are referred to as shares subscribed. Therefore, the nominal value of shares allotted to the public is termed as subscribed capital.

Paid up value of all shares allotted is called subscribed capital. 

Explanation: The part of the issued capital that is subscribed to and paid by the public is called subscribed capital.

Calls-in-arrears is deducted from the share capital to know paid up value of shares. 

Explanation: Calls-in-arrears represent the amount of capital called by a company but not paid by the shareholders. Calls-in-arrears are shown on the Liabilities side of the company’s Balance Sheet by way of deduction from the called-up capital to arrive at the net paid-up capital.

Calls-in-arrears is deducted from the share capital to know paid up value of shares.  

Explanation: Calls-in-arrears represent the amount of capital called by a company but not paid by the shareholders. Calls-in-arrears are shown on the Liabilities side of the company’s Balance Sheet by way of deduction from the called-up capital to arrive at the net paid-up capital.

Reserve Capital 

Explanation: It represents the portion of subscribed capital that remains uncalled except in case of winding up or at the time of liquidation. It does not form a part of a company’s Balance Sheet. 

As per Section 99 of the Companies Act, 1956, a company can create reserve capital by passing a special resolution.

Solution Cumulative Preference Share 

Explanation: In case of cumulative preference shares, the unpaid dividend on preference shares is accumulated and treated as arrears. In other words, the dividend on such shares is carried forward to the next year. The unpaid dividend on these shares keeps on accumulating till it is paid.

Uncalled Capital 

Explanation: It represents the part of issued and subscribed share capital which is not yet called up by a company. In other words, the part of face value of a share that is not called up by the company is referred to as uncalled capital.

Authorised Capital

 Explanation: The capital stated in the capital clause of the Memorandum of Association is regarded as authorised capital. It is the maximum amount of capital that a company can issue to its shareholders. It is also known as the registered capital or the nominal capital of a company.

When shareholders are supposed to pay a price higher than the face value of the shares, their shares are said to be issued at a premium.

i. premium

ii. Authorized

iii. Calls-in-Arrears

iv. Preference

v. Equity

The owned capital of a company when divided into a large number of parts having equal face value, each such part is called a ‘Share’.

Part of the called-up capital which is actually paid by the shareholders is called Paid-up Share Capital.

The part of the portion of authorised capital which is issued or offered for subscription to the public is called issued capital.

Calls-in-Advance is that amount paid by the shareholders in excess of the call amount due from them.

When a company received applications for shares less than those actually offered or issued to the public, the issue is said to be undersubscribed.