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Which of the following statements is false?
- a)At maturity, debenture holders get back their money as per the terms and conditions of redemption
- b)Debentures can be forfeited for non payment of call money
- c)In company’s balance sheet, debentures are shown under secured loans
- d)Interest on debentures is charged against profits
Correct answer is option 'B'. Can you explain this answer?
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Which of the following statements is false?a)At maturity, debenture ho...
The false statement is B: Debentures can be forfeited for non-payment of call money.
Explanation:
Debentures and their characteristics:
- Debentures are long-term debt instruments issued by companies to raise funds from the public.
- They are considered as a form of loan taken by the company from the investors.
- Debenture holders are the creditors of the company, and they have a fixed claim on the company's assets.
- Debentures have a fixed maturity date, and the company promises to repay the principal amount at the time of maturity.
Analysis of the given statements:
A: At maturity, debenture holders get back their money as per the terms and conditions of redemption.
- True. Debenture holders are entitled to receive the principal amount at the time of maturity as per the terms and conditions mentioned in the debenture agreement.
B: Debentures can be forfeited for non-payment of call money.
- False. Debentures cannot be forfeited for non-payment of call money. Call money refers to the amount payable by the debenture holders when the company exercises the option to redeem the debentures before their maturity. If the debenture holders fail to pay the call money, the company cannot forfeit the debentures.
C: In the company's balance sheet, debentures are shown under secured loans.
- True. Debentures are categorized as long-term borrowings and are shown under secured loans in the company's balance sheet. This is because debentures are backed by the company's assets, providing security to the debenture holders.
D: Interest on debentures is charged against profits.
- True. Interest on debentures is a financial expense for the company and is charged against profits in the income statement. It is considered as a cost of borrowing for the company.
In conclusion, the false statement is B: Debentures can be forfeited for non-payment of call money.
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Which of the following statements is false?a)At maturity, debenture ho...
Understanding Debentures
Debentures are a type of long-term debt instrument used by companies to raise capital, and they come with specific terms regarding interest payments and redemption at maturity.
Analysis of the Statements
- Statement A: "At maturity, debenture holders get back their money as per the terms and conditions of redemption."
- True. Debenture holders receive their principal amount back at maturity as agreed in the debenture terms.
- Statement B: "Debentures can be forfeited for non-payment of call money."
- False. This statement is misleading. Debentures are not subject to forfeiture for non-payment of call money. Call money typically pertains to shares, not debentures. If a company fails to pay interest, it could lead to default, but not forfeiture.
- Statement C: "In a company's balance sheet, debentures are shown under secured loans."
- True. Debentures, especially secured ones, are classified under liabilities, often listed as secured loans if they are backed by specific assets.
- Statement D: "Interest on debentures is charged against profits."
- True. Interest on debentures is considered an expense and is deducted from profits before calculating taxable income.
Conclusion
In summary, the false statement is option B, as debentures cannot be forfeited for non-payment of call money, which is relevant only to shares. Understanding these nuances is crucial for those studying finance and accounting, particularly in the CA Foundation curriculum.
Debentures are a type of long-term debt instrument used by companies to raise capital, and they come with specific terms regarding interest payments and redemption at maturity.
Analysis of the Statements
- Statement A: "At maturity, debenture holders get back their money as per the terms and conditions of redemption."
- True. Debenture holders receive their principal amount back at maturity as agreed in the debenture terms.
- Statement B: "Debentures can be forfeited for non-payment of call money."
- False. This statement is misleading. Debentures are not subject to forfeiture for non-payment of call money. Call money typically pertains to shares, not debentures. If a company fails to pay interest, it could lead to default, but not forfeiture.
- Statement C: "In a company's balance sheet, debentures are shown under secured loans."
- True. Debentures, especially secured ones, are classified under liabilities, often listed as secured loans if they are backed by specific assets.
- Statement D: "Interest on debentures is charged against profits."
- True. Interest on debentures is considered an expense and is deducted from profits before calculating taxable income.
Conclusion
In summary, the false statement is option B, as debentures cannot be forfeited for non-payment of call money, which is relevant only to shares. Understanding these nuances is crucial for those studying finance and accounting, particularly in the CA Foundation curriculum.
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Which of the following statements is false?a)At maturity, debenture holders get back their money as per the terms and conditions of redemptionb)Debentures can be forfeited for non payment of call moneyc)In companys balance sheet, debentures are shown under secured loansd)Interest on debentures is charged against profitsCorrect answer is option 'B'. Can you explain this answer?
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