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 Debentures interest
  • a)
    Is payable only in case of profits
  • b)
    Accumulates in case of losses or inadequate profits
  • c)
    Is payable after the payment of preference dividend but before the payment of equity dividend 
  • d)
    Is payable before the payment of any dividend on shares
Correct answer is option 'D'. Can you explain this answer?
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Debentures interesta)Is payable only in case of profitsb)Accumulates i...
Debentures Interest Payment

Debentures are a form of long-term borrowing for companies. They are issued to the public and carry a fixed rate of interest. The interest on debentures is paid to the debenture holders periodically, and the payment of interest is a legal obligation of the company.

Payable before equity dividend

The payment of interest on debentures is made before the payment of any dividend on shares. This means that the company has to pay the interest on debentures first, and only after that, it can pay any dividend on shares.

No relation to profits

The payment of interest on debentures is not related to the profits or losses of the company. The company has to pay the interest on debentures even if it makes losses or has inadequate profits. This is because the payment of interest on debentures is a legal obligation of the company, and it cannot be avoided.

Different from preference dividend

The payment of interest on debentures is different from the payment of preference dividend. The preference dividend is paid to preference shareholders before any dividend is paid to equity shareholders. However, the payment of interest on debentures is made after the payment of preference dividend.

Conclusion

In conclusion, the payment of interest on debentures is a legal obligation of the company, and it has to be made before the payment of any dividend on shares. The payment of interest on debentures is not related to the profits or losses of the company, and it is made after the payment of preference dividend.
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Debentures interesta)Is payable only in case of profitsb)Accumulates in case of losses or inadequate profitsc)Is payable after the payment of preference dividend but before the payment of equity dividendd)Is payable before the payment of any dividend on sharesCorrect answer is option 'D'. Can you explain this answer?
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