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Question
Which of the following statement 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 profit.
Which of the following statement 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 profit.
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Solution
The correct option is C Only (c)
When debentures are redeemed at premium, a provision has to be made right at the time of the issue by debiting the amount to "loss on issue of debenture a/c" It may be noted that when debentures are issued at a discount and are redeemable at premium, the amount of discount issue is also debited to 'Loss on issue of debentures".
Rest all the options mentioned for debentures are not true as they are not the owners of the company and receive the interests irrespective of the profit or losses. It is the equity shareholders who get money back only in the event of liquidation.
When debentures are redeemed at premium, a provision has to be made right at the time of the issue by debiting the amount to "loss on issue of debenture a/c" It may be noted that when debentures are issued at a discount and are redeemable at premium, the amount of discount issue is also debited to 'Loss on issue of debentures".
Rest all the options mentioned for debentures are not true as they are not the owners of the company and receive the interests irrespective of the profit or losses. It is the equity shareholders who get money back only in the event of liquidation.
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