Question

Conversion of debentures into equity shares will:
a) Decrease in assets, increase in liability
b) Decrease in liability, increase in owners' equity
c) Increase in liability, increase in assets d) Increase in assets, decrease in liability​

Answer 1

The correct option is

b. Decrease in liability, increase in owners' equity.

Answer 2

a) Increase in one quality, decrease in alternative quality. - Purchase of machinery in money. In alternative words, Increase in assets and reduce in cash.

Explanation:

a) Increase in one quality, decrease in alternative quality. - Purchase of machinery in money. In alternative words, Increase in assets and reduce in cash.

b) Increase in assets, increase in liability - shopping for product on credit. Increase in stock and increase in creditors.

c) Increase in assets, increase in owner's capital - issue of shares. Increase in share capital and increase in cash.

d) Decrease in assets, decrease in liabilities – payment to creditors i.e. decrease in cash and reduce in creditors

e) Decrease in assets, Decrease in owner's capital- Withdrawals (withdrawn by partners) i.e. Decrease in capital ad Decrease in cash.

f) Increase in one liability, decrease within the alternative liability- bills issued to creditors. That is, it'll scale back one liability (creditors) on the one hand and increase the opposite liability (bills payable) on the opposite.

g) Increase in liability, decrease in owner's capital - conversion of share capital into debentures. i.e., decrease in share capital and increase in debentures.

h) Decrease in liability, increase in owner's capital.—Conversion of debentures into shares., ie. Increase in share capital and reduce in Debentures (Long Term Liability).