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What are Debentures? Video Lecture | Accounting for Grade 12

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FAQs on What are Debentures? Video Lecture - Accounting for Grade 12

1. What are debentures in commerce?
Ans. Debentures are long-term debt instruments issued by companies to raise funds from the public. They are essentially a type of loan that investors provide to the company in exchange for regular interest payments and the repayment of the principal amount at maturity.
2. How do debentures work?
Ans. When a company issues debentures, it sets a fixed interest rate and a maturity date. Investors who purchase these debentures lend money to the company and receive periodic interest payments. At the end of the maturity period, the company repays the principal amount to the debenture holders.
3. What is the difference between debentures and shares?
Ans. Debentures and shares are both ways for companies to raise capital, but they differ in terms of ownership and returns. Debenture holders are creditors of the company and have a fixed interest rate, while shareholders are owners of the company and receive dividends based on the company's profits.
4. Are debentures safe investments?
Ans. Debentures can be considered relatively safer investments compared to equity shares because they have a fixed interest rate and priority in case of liquidation. However, the safety of debentures depends on the creditworthiness of the issuing company. Investors should carefully assess the company's financial health before investing in debentures.
5. Can debentures be converted into shares?
Ans. Yes, some debentures come with an option for conversion into equity shares. These are known as convertible debentures. The conversion is based on predetermined terms and conditions, allowing debenture holders to become shareholders of the company if they choose to exercise the conversion option.
57 videos|79 docs|68 tests
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