CA Foundation Exam > CA Foundation Questions > Which of the followings statements is false?a...
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Which of the followings statements is false?
- a)Equity is owners' stake and the debenture is a debt
- b)Rate of interest on debentures is fixed
- c)Debenture holders get preferential treatment over the equity holders at the time of liquidation
- d)Interest on debentures is an appropriation of profits
Correct answer is option 'D'. Can you explain this answer?
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Most Upvoted Answer
Which of the followings statements is false?a)Equity is owners' st...
Explanation:
Debentures are a type of long-term debt instrument that companies use to raise funds from the public. On the other hand, equity refers to the ownership stake in a company. Let's analyze each statement to identify the false one.
a) Equity is owners stake and the debenture is a debt: This statement is true. Equity represents the ownership interest in a company, and shareholders are the owners of the company. Debentures, on the other hand, are a form of debt where the company borrows money from investors and promises to repay it at a fixed interest rate.
b) Rate of interest on debentures is fixed: This statement is true. Debentures typically carry a fixed rate of interest, which is predetermined at the time of issuance. This ensures that debenture holders receive a fixed return on their investment.
c) Debenture holders get preferential treatment over the equity holders at the time of liquidation: This statement is true. In the event of liquidation or bankruptcy, debenture holders have a higher claim over the company's assets compared to equity holders. Debenture holders are considered creditors and have a priority in repayment over equity holders, who are the owners of the company.
d) Interest on debentures is an appropriation of profits: This statement is false. Interest on debentures is not an appropriation of profits. It is a financial expense for the company and is deducted from the company's profits before calculating the net profit available for distribution to equity shareholders. It is important to note that interest on debentures is a fixed obligation that the company needs to fulfill, regardless of its profitability.
In conclusion, the false statement is option 'D': Interest on debentures is an appropriation of profits. Interest on debentures is a financial expense for the company and is not considered as an appropriation of profits.
Debentures are a type of long-term debt instrument that companies use to raise funds from the public. On the other hand, equity refers to the ownership stake in a company. Let's analyze each statement to identify the false one.
a) Equity is owners stake and the debenture is a debt: This statement is true. Equity represents the ownership interest in a company, and shareholders are the owners of the company. Debentures, on the other hand, are a form of debt where the company borrows money from investors and promises to repay it at a fixed interest rate.
b) Rate of interest on debentures is fixed: This statement is true. Debentures typically carry a fixed rate of interest, which is predetermined at the time of issuance. This ensures that debenture holders receive a fixed return on their investment.
c) Debenture holders get preferential treatment over the equity holders at the time of liquidation: This statement is true. In the event of liquidation or bankruptcy, debenture holders have a higher claim over the company's assets compared to equity holders. Debenture holders are considered creditors and have a priority in repayment over equity holders, who are the owners of the company.
d) Interest on debentures is an appropriation of profits: This statement is false. Interest on debentures is not an appropriation of profits. It is a financial expense for the company and is deducted from the company's profits before calculating the net profit available for distribution to equity shareholders. It is important to note that interest on debentures is a fixed obligation that the company needs to fulfill, regardless of its profitability.
In conclusion, the false statement is option 'D': Interest on debentures is an appropriation of profits. Interest on debentures is a financial expense for the company and is not considered as an appropriation of profits.
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Which of the followings statements is false?a)Equity is owners' st...
Interest on debentures is not an appropriation against the profits but it is a charge against profit because interest on debentures is to be paid to the debenture holders weather we get profit or loss the interest is to be paid even though we get loss so it is to be treated as a charge against the profits therefore option d is the correct answer
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Which of the followings statements is false?a)Equity is owners' stake and the debenture is a debtb)Rate of interest on debentures is fixedc)Debenture holders get preferential treatment over the equity holders at the time of liquidationd)Interest on debentures is an appropriation of profitsCorrect answer is option 'D'. Can you explain this answer?
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Which of the followings statements is false?a)Equity is owners' stake and the debenture is a debtb)Rate of interest on debentures is fixedc)Debenture holders get preferential treatment over the equity holders at the time of liquidationd)Interest on debentures is an appropriation of profitsCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the followings statements is false?a)Equity is owners' stake and the debenture is a debtb)Rate of interest on debentures is fixedc)Debenture holders get preferential treatment over the equity holders at the time of liquidationd)Interest on debentures is an appropriation of profitsCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the followings statements is false?a)Equity is owners' stake and the debenture is a debtb)Rate of interest on debentures is fixedc)Debenture holders get preferential treatment over the equity holders at the time of liquidationd)Interest on debentures is an appropriation of profitsCorrect answer is option 'D'. Can you explain this answer?.
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