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Which of the following is not correct in respect of debentures:
- a)They can be issued for cash
- b)They can be issued for consideration other than cash
- c)A company can buy its own debentures
- d)They can be issued in lien of dividends
Correct answer is option 'D'. Can you explain this answer?
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Which of the following is not correct in respect of debentures:a)They ...
Debentures are a type of long-term debt instrument that companies can issue to raise capital. They are essentially loans taken out by the company, which are backed by the company's assets and promise to repay the principal amount along with periodic interest payments.
Let's examine each option and determine which one is not correct:
a) They can be issued for cash: This statement is correct. Companies can issue debentures in exchange for cash. This is the most common method of issuing debentures, as it allows the company to raise funds to finance its operations or invest in new projects.
b) They can be issued for consideration other than cash: This statement is correct. Companies can also issue debentures in exchange for consideration other than cash. For example, a company may issue debentures in exchange for shares of another company, assets, or services rendered.
c) A company can buy its own debentures: This statement is correct. Companies have the option to buy back their own debentures from the open market or directly from the debenture holders. This process is known as debenture redemption. By buying back its own debentures, the company can reduce its debt burden and interest payments.
d) They can be issued in lieu of dividends: This statement is incorrect. Debentures cannot be issued in lieu of dividends. Dividends are a distribution of profits to shareholders, whereas debentures are a form of borrowing for the company. While debenture holders are entitled to receive interest payments, they do not participate in the company's profits or dividends.
In summary, the correct answer is option 'D' - They can be issued in lieu of dividends. Debentures cannot be issued in lieu of dividends as they are a form of borrowing for the company and do not entitle the holders to a share in the company's profits or dividends.
Let's examine each option and determine which one is not correct:
a) They can be issued for cash: This statement is correct. Companies can issue debentures in exchange for cash. This is the most common method of issuing debentures, as it allows the company to raise funds to finance its operations or invest in new projects.
b) They can be issued for consideration other than cash: This statement is correct. Companies can also issue debentures in exchange for consideration other than cash. For example, a company may issue debentures in exchange for shares of another company, assets, or services rendered.
c) A company can buy its own debentures: This statement is correct. Companies have the option to buy back their own debentures from the open market or directly from the debenture holders. This process is known as debenture redemption. By buying back its own debentures, the company can reduce its debt burden and interest payments.
d) They can be issued in lieu of dividends: This statement is incorrect. Debentures cannot be issued in lieu of dividends. Dividends are a distribution of profits to shareholders, whereas debentures are a form of borrowing for the company. While debenture holders are entitled to receive interest payments, they do not participate in the company's profits or dividends.
In summary, the correct answer is option 'D' - They can be issued in lieu of dividends. Debentures cannot be issued in lieu of dividends as they are a form of borrowing for the company and do not entitle the holders to a share in the company's profits or dividends.
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Which of the following is not correct in respect of debentures:a)They can be issued for cashb)They can be issued for consideration other than cashc)A company can buy its own debenturesd)They can be issued in lien of dividendsCorrect answer is option 'D'. Can you explain this answer?
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