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प्रश्न
Explain the meaning of debentures. State any four disadvantages of debentures.
उत्तर
Debentures are common securities issued under borrowed fund capital. Debentures are instruments for raising long-term debt capital. Debentures are called creditor ship securities because debenture holders are called creditors of a company.
A debenture can be defined as ‘a document or a certificate” issued by a company under its seal as an acknowledgment of its debt. Holder of debenture certificate is called debenture holder. Following are disadvantages of Debenture :
Fixed Obligation: Payment of interest is a fixed commitment of the organisation whether it is earning profit or not. Sometimes companies have to borrow funds for payment of interest to debenture holders.
Reduction in Credibility: Financial institutions and lenders hesitate to lend funds in the companies having more of debentures. The credit-worthiness of a company which has issued a large number of debentures is low.
Charge on Assets: Usually, debentures are issued against securities of fixed assets. During the time of depression, if a company is unable to pay the regular amount of interest and finds it difficult to repay the amount, in this situation the debenture holders can have claim over the assets of the company.
No Voting Rights: The debenture holders are not allowed to vote in the management of the company. All the decisions regarding interest rate for debentures are taken by the equity shareholders only. Therefore, they remain at the mercy of equity shareholders.
APPEARS IN
संबंधित प्रश्न
On 1st April 2014, KK Ltd. invited applications for issuing 5,000 10% debentures of Rs 1,000 each at a discount of 6%. These debentures were repayable at the end of the 3rd year at a premium of 10%. Applications for 6,000 debentures were received and the debentures were allotted on pro-rata basis to all the applicants. Excess money received with applications was refunded.
The directors decided to transfer the minimum amount to Debenture Redemption Reserve on 31.3.2016. On 1.4.2016, the company invested the necessary amount in 9% bank fixed deposit as per the provisions of the Companies Act 2013. A tax was deducted at source by bank on interest @10% p.a.
Pass the necessary journal entries for issue and redemption of debentures. Ignore entries relating to writing off a loss on issue of debentures and interest paid on debentures.
On 1.4.2015 PPR Ltd. issued 1500, 10% debentures of Rs 100 each at a discount of 3%, redeemable at a premium of 8% after three years. The company closes its books on 31st March every year. Interest on 10% debentures is payable on 30th September and 31st March. Rate of tax deducted at source is 10%.
Pass necessary journal entries for the issue of 10% debentures and interest for the year ended 31.3.2016
Answer in a sentence only.
What is a ‘Convertible Debenture’?
Write one word/term/phrase which can substitute the following
The debentures of which payment is made on the expiry of specific period.
Select most appropriate alternative from those given below
__________ is acknowledgment of debt under common seal of company.
Select most appropriate alternative from those given below ____________debentures which are recorded in register of company.
State to whether the following statement is True/False.
The amount of irredeemable debentures is not paid in the life time of the company.
State to whether the following statement is True/False.
The unregistered debentures are known as naked debentures.
Give the word / term or phrase which can substitute the following statement.
The debentures which are converted into shares.
Random Ltd. took over running business of Mature Ltd. comprising of Assets of ₹ 45,00,000 and Liabilities of ₹ 6,40,000 for a purchase consideration of ₹ 36,00,000. The amount was settled by bank draft of ₹ 1,50,000 and balance by issuing 12% preference shares of ₹ 100 each at 15% premium. Pass entries in the books of Random Ltd.
