CHAPTER 8 ISSUE OF DEBENTURE

ASSERTION REASON TYPE QUESTIONS

Sl.No. Question
a. Both Assertion (A) and Reason(R) are true and reason is correct explanation of
assertion.
b. Assertion(A) and Reason(R) both are true but reason is not the correct explanation
of assertion.
c. Assertion(A) is true, Reason(R) is false.
d. Assertion(A) is false, Reason(R) is true.
1 Assertion(A) Issue price of debentures can be collected in lump sum or in installments

Reason(R) : when Issue price is payable in lump sum, the amount received on
application is credited to “Debentures Application and Allotment Account”
2 .Assertion(A) : Debentureholder gets interest at the stated rate whether the company
earns profit or not

Reason(R) : interest on debenture is treated as an appropriation of profit

3 Assertion(A) A Company may allot debentures to the promoters for rendering services
for incorporating the Company

Reason(R) : Incorporation Expenses are written off in the year they are incurred
4 Assertion(A) : 10,000, 11% debentures of Rs.100 each are issued on 1 April 2020
st

redeemable on 31 December 2022. These debentures will be shown as Short term

st

Borrowings under the head Current liabilities in the Balance Sheet as at 31 March2021
st

Reason(R) : when debentures are issued and are due for redemption within 12 months
or within the period of operating cycle from the date of Balance Sheet they are treated as
Short term borrowings.

5 Assertion: Debentures can be issued as a collateral security

Reason: The amount of loan can be realized in full with the help of collateral security
during default
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
6 Assertion: Interest on debentures must be paid irrespective of profit or loss
Reason: Interest on debenture is a charge against the profit of the company
(A) Both Assertion and reason are true and reason is correct explanation of assertion.

KVS ZIET BHUBANESWAR 12/10/2021 Page 1

 (B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
7 Assertion: Discount or loss on issue of debentures must be written off before such
debentures are redeemed
Reason: Discount or loss on issue of debenture is a capital loss
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
8 Assertion: Debentures are liability
Reason: Debentures are shown on the asset side of the balance sheet
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion false, reason is true is
9 Assertion: Debentures carry voting rights
Reason: Debentures are the creditors of the company
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) and reason both are true but reason is not the correct explanation of assertion.
Assertion
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true
10. Assertion(A): zero coupon bonds are issued without specified rate of interest.
Reason (R): it is type of bond which is similar to the debenture and being issued by the
government.
a. Both assertion(A) and reason(R) are true and reason(R) is the correct explanation of
assertion(A).
b. Both assertion(A) and reason(R) are true and reason(R) is not the correct explanation of
assertion(A).
c. Assertion (A) is true but the reason(R) is false.
d. Assertion (A) is false but the reason(R) is true.

11. Assertion(A): redeemable debentures are those debentures which will be repaid by the
company either in lump-sum at the end of a specified period or by instalments during the lifetime
of the company.
Reason (R):irredeemable debentures are repayable only at the time of liquidation of the
company.
a. Both assertion(A) and reason(R) are true and reason(R) is the correct explanation of
assertion(A).

KVS ZIET BHUBANESWAR 12/10/2021 Page 2

b. Both assertion(A) and reason(R) are true and reason(R) is not the correct explanation of
assertion(A).
c. Assertion (A) is true but the reason(R) is false.
d. Assertion (A) is false but the reason(R) is true

12. Assertion(A): a debenture issued by a company in the form of a certificate, which is a written
acknowledgement of debt taken by the company.
Reason (R): a debenture is a part of the loan and as such, the debenture holders are the creditors
of the company.
a. Both assertion(A) and reason(R) are true and reason(R) is the correct explanation of
assertion(A).
b. Both assertion(A) and reason(R) are true and reason(R) is not the correct explanation of
assertion(A).
c. Assertion (A) is true but the reason(R) is false.
d. Assertion (A) is false but the reason(R) is true

13. Assertion(A): a debenture holder is entitled to interest at the fixed rate.

Reason (R): interest payble on debentures is transferred to general reserve.
a. Both assertion(A) and reason(R) are true and reason(R) is the correct explanation of
assertion(A).
b. Both assertion(A) and reason(R) are true and reason(R) is not the correct explanation of
assertion(A).
c. Assertion (A) is true but the reason(R) is false.
d. Assertion (A) is false but the reason(R) is true.

ii. Assertion and reasoning type question

14 Assertion: If debentures of ₹100, issued for ₹95 and is redeemable at 105, then loss on issue
debentures will be ₹10
Reason: Both on discount of issue and premium on redemption are capital losses and combined
into one account
A. Both A and R are individually true, and R is correct explanation of A
B. Both A and R are individually true, and R is not the correct explanation of A
C. A is true but R is False
D. Both A and R are False
15 Assertion: If debentures of ₹100, issued for ₹95 and is redeemable at 105, then loss on issue
debentures will be ₹5
Reason: Premium on redemption of debentures is not capital loss
A. Both A and R are individually true, and R is correct explanation of A
B. Both A and R are individually true, and R is not the correct explanation of A
C. A is true but R is False
D. Both A and R are False

KVS ZIET BHUBANESWAR 12/10/2021 Page 3

16 Assertion: Balance in debenture interest accounts transferred to statement of profit and loss at end
of the year
Reason: Interest on debentures is a charge against profit earned by the company
A. Both A and R are individually true, and R is correct explanation of A
B. Both A and R are individually true, and R is not the correct explanation of A
C. A is true but R is False
D. Both A and R are False
17 Assertion: XYZ Ltd. Issued 10,000, 10% debentures of ₹ 100 each. During the first year of issue the
company suffers a huge loss. Therefore, the payment on debentures on due date, the company
obtained a loan from bank.
Reason: If profit not available for payment of interest on debentures, the company repay the
interest by taking loan only
A. Both A and R are individually true, and R is correct explanation of A
B. Both A and R are individually true, and R is not the correct explanation of A
C. A is true but R is False
D. Both A and R are False

Sl.No. Question
Assertion (A): Sarita Pvt. Ltd. issued 15% 10,000 debentures at par @ Rs. 100 per
18. debenture. The company suffered a loss but still the directors of the company paid
interest on debentures.
Reason (R): Interest on debenture is a charge against profits and therefore, its payment
is not subject to the earning of profit.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
19 Assertion (A): The ‘discount on debentures’ issuance is charged to ‘Securities Premium
Account’ and is reflected as an asset.
Reason (R): The ‘discount on debentures’ issuance is noted as a capital loss side as a
fictitious asset. Hence, has to be written off during the years of its issue.
A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
20 Assertion (A): Issue of debenture does not result in dilution of interest of equity
shareholders.
Reason (R): Debenture holders have voting rights.

A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.

KVS ZIET BHUBANESWAR 12/10/2021 Page 4

 (D) Assertion is false, reason is true.

21 Assertion (A): Debentures saves income tax.

Reason (R): Interest on debenture is tax deductible expenditure.

A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of
assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.

ASSERTION REASON TYPE QUESTIONS

Assertion: Debenture holders do not enjoy any voting right

22 Reason: A debenture holder just lends money but does not become an owner of the
company with the purchase of debentures
A. Both Assertion (A) and Reason (R) are True and Reason (R) is the correct explanation of
Assertion (A)
B. Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation
of Assertion (A)
C. Assertion (A) is True but Reason (R) is False.
D. Assertion (A) is False but Reason (R) is True

Assertion: Debentures saves income tax

23 Reason: Interest on debenture is a non deductible expenditure
A. (A) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct
explanation of Assertion (A)
B. Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation
of Assertion (A)
C. Assertion (A) is True but Reason (R) is False.
D. Assertion (A) is False but Reason (R) is True.

Assertion: Debenture holders are the owners of the company

24 Reason: Debenture holders do not have the voting right
A. Both Assertion (A) and Reason (R) are True and Reason (R) is the correct explanation of
Assertion (A)
B. (b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct
explanation of Assertion (A)
C. Assertion (A) is True but Reason (R) is False.
D. Assertion (A) is False but Reason (R) is True.

25 Assertion: Debenture is a written acknowledgement of debt taken by the company

Reason: A debenture is generally secured by a charge on the assets of the company.
A. Both Assertion (A) and Reason (R) are True and Reason (R) is the correct explanation of
Assertion (A)
B. Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation

KVS ZIET BHUBANESWAR 12/10/2021 Page 5

 of Assertion (A)
C. Assertion (A) is True but Reason (R) is False
D. Assertion (A) is False but Reason (R) is True

ASSERTION REASON QUESTION

Read the following statements –Assertion (A) and Reason (R) Choose one of the
correct alternatives given below :
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
c. Assertion (A) is true but Reason ( R) is false
d. Assertion (A) is true but Reason ( R) is true
Answer question no 11 to 14

26. Assertion (A) Collateral security means secondary security in addition to principal security.
Reason (R ) Debentures can be issued as a collateral security by the companies incase
principal security fall short.
27. Assertion (A) A Debenture is issued by a company in the form of a certificate ,which is
written acknowledgement of debt taken by the company
Reason (R) It contains a contract for repayment of principal sum at specific date
28. Assertion (A) Debentures are redeemable.
Reason (B) It is a type of liability which must be minimized

29. Assertion (A) Discount or loss on issue of debentures is written off from securities
premium reserve or capital reserve.
Reason (R) It is a capital loss so it must be written off ,first from capital profit

i. ASSERTION REASON TYPE QUESTIONS

30 Assertion: Debentures are presented under non-current liabilities in the balance sheet of a
company.
Reasoning:Debenture is a written acknowledgement of a long term debt taken by the
company from the public (investors)
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
31 Assertion:Debenture holder are not the owner of the company.
Reasoning:Debenture is a part of borrowed capital
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.

KVS ZIET BHUBANESWAR 12/10/2021 Page 6

(D) Assertion is false, reason is true.
32 Assertion:Interest on debenture must be paid whether the company has earned any profit or
not
Reasoning:Interest on debenture is an appropriation of profit of the company
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.

33 Assertion:X ltd. Issued 10,000 12% debentures of Rs. 100 at a premium of Rs. 20 per
debentures for 5 years. AtleastRs. 2,00,000 must be invested in DRI before redemption of
these debentures.
Reasoning: As per SEBI regulations an amount equal to 15% of debentures to be redeemed
must be invested in DRI before redemption of these debentures.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
34 Assertion: X ltd. Issued 10,000 12% debentures of Rs. 100 at a premium of Rs. 20 per
debentures on 31/07/2017 for 5 years. AtleastRs. 1,50,000 must be invested in DRI before
redemption of these debentures.
Reasoning: DRI must be invested before 30/04/2022.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
Assertion Reasoning based questions
35 Read the following statements: Assertion and Reason, choose one of the correct
alternative given below:
Assertion(A): Sarita private limited issued 15% 10000 at par @ Rs. 100 per
debenture. The company suffered a loss but still the director of company paid interest
on debentures
Reason(R): Interest on debenture is a charge against profit and therefore its payment
is not subject to earning of profit.

a. Both Assertion (A) and Reason (R) are true and Reason(R) is correct
explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason(R) is not the correct
explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is False
d. Assertion (A) is false but Reason (R) is true

KVS ZIET BHUBANESWAR 12/10/2021 Page 7

36.Read the following statements: Assertion and Reason, choose one of the correct
alternative given below:
Assertion(A): The discount on debentures issuance is charge to security premium
account and is reflected as an asset.
Reason(R): The discount on debenture issue of debenture is noted as a capital loss
hance has to be written off during the year of its issue.

a. Both Assertion (A) and Reason (R) are true and Reason(R) is correct
explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason(R) is not the correct
explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is False
d. Assertion (A) is false but Reason (R) is true

37.Read the following statements: Assertion and Reason, choose one of the correct
alternative given below:
Assertion(A): Debenture holder do not enjoy any voting right.
Reason(R): Debenture holder just lend money but does not become an owner of the
company with the purchase of debenture.

a. Both Assertion (A) and Reason (R) are true and Reason(R) is correct
explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason(R) is not the correct
explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is False
d. Assertion (A) is false but Reason (R) is true

38.Read the following statements: Assertion and Reason, choose one of the correct
alternative given below:
Assertion(A): Debenture holders are the creditor of company carrying a fixed rate of
interest.
Reason(R): Debentures are short term loans taken from public.

KVS ZIET BHUBANESWAR 12/10/2021 Page 8

a. Both Assertion (A) and Reason (R) are true and Reason(R) is correct
explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason(R) is not the correct
explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is False
d. Assertion (A) is false but Reason (R) is true

39. Read the following statements: Assertion and Reason, choose one of the correct
alternative given below:
Assertion(A): The bank account is debited with the money is received from
debentures.
Reason(R): Bank being a real account need to be debited when something comes in.

a. Both Assertion (A) and Reason (R) are true and Reason(R) is correct
explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason(R) is not the correct
explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is False
d. Assertion (A) is false but Reason (R) is true

40. Read the following statements: Assertion and Reason, choose one of the correct
alternative given below:
Assertion(A): Debenture saves income tax
Reason(R): Interest on debenture is tax deductible expenditure.

a. Both Assertion (A) and Reason (R) are true and Reason(R) is correct
explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason(R) is not the correct
explanation of Assertion (A)
c. Assertion (A) is true but Reason (R) is False
d. Assertion (A) is false but Reason (R) is true

KVS ZIET BHUBANESWAR 12/10/2021 Page 9

 ANSWER KEY
Assertion Reason Answers
1 b
2 c
3 a
4 a

Assertion Reason Questions

5 (A) Both Assertion and reason are true and reason is correct explanation of assertion.
6 (A) Both Assertion and reason are true and reason is correct explanation of assertion.
7 (B) Assertion and reason both are true but reason is not the correct explanation of assertion.
8 (C) Assertion is true, reason is false.
9 (D) Assertion is false, reason is true

ASSERTION REASON QUESTION

10 a
11 b
12 a
13 c

Assertion and reasoning type question

14 Both A and R are individually true, and R is correct explanation of A
15 Both A and R are False
16 Both A and R are individually true, and R is correct explanation of A
17 A is true but R is False
17 A
18 A
19 C
20 A
21 A
22 A
D
23
24 B
25. a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

26. a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A)

27 b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct

KVS ZIET BHUBANESWAR 12/10/2021 Page 10

 explanation of Assertion (A)

28. (b)Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
explanation of Assertion (A)
Assertion Reason Questions
29. (A) Both Assertion and reason are true and reason is correct explanation of assertion.
30.(A) Both Assertion and reason are true and reason is correct explanation of assertion.
31. (C) Assertion is true, reason is false.
32.(D) Assertion is false, reason is true
33.(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
35. A
36. D
37. A
38. C
39. A
40. A

PREPARED BY THE PGTs ( COMMERCE ) OF BHUBANESWAR, GUWAHATI, KOLKATA, RANCHI,

SILCHAR AND TINSUKIA REGIONS.

KVS ZIET BHUBANESWAR 12/10/2021 Page 11