CA Foundation Exam > CA Foundation Questions > Which of the following statements is false?a)...
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Which of the following statements is false?
- a)Debenture is a form of public borrowing
- b)It is customary to prefix debentures with the agreed rate of interest
- c)Debenture interest is a charge against profits
- d)The issue price and redemption value of debentures cannot differ.
Correct answer is option 'D'. Can you explain this answer?
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Which of the following statements is false?a)Debenture is a form of pu...
False Statement about Debentures
Debentures are long-term debt instruments that are issued by companies to borrow money from the public. They are considered as a safe investment option as they provide fixed interest rates and are backed by the creditworthiness of the issuing company. However, there are certain misconceptions about debentures. Let's look at the false statement about debentures.
Issue Price and Redemption Value of Debentures Can Differ
The false statement is D, which states that the issue price and redemption value of debentures cannot differ. This statement is incorrect because the issue price and redemption value of debentures can differ based on various factors like market demand, interest rates, tenure, and creditworthiness of the issuing company.
Importance of Prefixing Debentures with Agreed Rate of Interest
It is customary to prefix the debentures with the agreed rate of interest to avoid any confusion among investors. This helps the investors to know the exact interest rate that they will receive on their investment. The rate of interest on debentures is fixed and is paid periodically till the maturity of the debenture.
Debenture Interest as a Charge Against Profits
Debenture interest is a charge against profits as the company has to pay the interest on the debentures from its profits. This reduces the net profit of the company, which in turn affects the earnings per share (EPS) of the company.
Conclusion
In conclusion, debentures are an important source of long-term financing for companies. They provide a fixed interest rate to investors and are considered as a safe investment option. However, it is important to understand the terms and conditions of the debenture before investing in them. The false statement about debentures is that the issue price and redemption value of debentures cannot differ.
Debentures are long-term debt instruments that are issued by companies to borrow money from the public. They are considered as a safe investment option as they provide fixed interest rates and are backed by the creditworthiness of the issuing company. However, there are certain misconceptions about debentures. Let's look at the false statement about debentures.
Issue Price and Redemption Value of Debentures Can Differ
The false statement is D, which states that the issue price and redemption value of debentures cannot differ. This statement is incorrect because the issue price and redemption value of debentures can differ based on various factors like market demand, interest rates, tenure, and creditworthiness of the issuing company.
Importance of Prefixing Debentures with Agreed Rate of Interest
It is customary to prefix the debentures with the agreed rate of interest to avoid any confusion among investors. This helps the investors to know the exact interest rate that they will receive on their investment. The rate of interest on debentures is fixed and is paid periodically till the maturity of the debenture.
Debenture Interest as a Charge Against Profits
Debenture interest is a charge against profits as the company has to pay the interest on the debentures from its profits. This reduces the net profit of the company, which in turn affects the earnings per share (EPS) of the company.
Conclusion
In conclusion, debentures are an important source of long-term financing for companies. They provide a fixed interest rate to investors and are considered as a safe investment option. However, it is important to understand the terms and conditions of the debenture before investing in them. The false statement about debentures is that the issue price and redemption value of debentures cannot differ.
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Which of the following statements is false?a)Debenture is a form of pu...
Debentures can be issued at par, discount or premium.
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Which of the following statements is false?a)Debenture is a form of public borrowingb)It is customary to prefix debentures with the agreed rate of interestc)Debenture interest is a charge against profitsd)The issue price and redemption value of debentures cannot differ.Correct answer is option 'D'. Can you explain this answer?
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