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Interest on Debentures Video Lecture | Accounting for Grade 12

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FAQs on Interest on Debentures Video Lecture - Accounting for Grade 12

1. What is the concept of interest on debentures in commerce?
Ans. Interest on debentures in commerce refers to the payment made by a company to its debenture holders for borrowing funds through debentures. It is a fixed income payment made at regular intervals to the debenture holders, usually in the form of interest.
2. How is the interest on debentures calculated?
Ans. The interest on debentures is calculated by multiplying the face value of the debentures by the rate of interest specified in the debenture agreement. The formula for calculating interest on debentures is: Interest on Debentures = Face Value of Debentures × Rate of Interest.
3. What is the importance of interest on debentures for a company?
Ans. The importance of interest on debentures for a company lies in its ability to raise funds for various purposes. By offering regular interest payments to debenture holders, a company can attract investors and secure long-term financing. Additionally, interest on debentures is a tax-deductible expense for the company, reducing its overall tax liability.
4. Can a company change the rate of interest on debentures?
Ans. No, a company cannot unilaterally change the rate of interest on debentures once it has been specified in the debenture agreement. The rate of interest is agreed upon at the time of debenture issuance and is legally binding. Any changes to the rate of interest would require the consent of the debenture holders through a special resolution.
5. What happens if a company fails to pay interest on debentures?
Ans. If a company fails to pay interest on debentures, it is considered a default. Debenture holders have the right to take legal action against the company to recover the unpaid interest. In severe cases, the company may be declared bankrupt, and the debenture holders may become creditors in the liquidation process.
57 videos|79 docs|68 tests
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