Which of the following is true about debentures?

(A) Debenture is a part of owned capital.

(B) The payment of interest on debentures is a charge on the profits of the company.

(C) The debentures cannot be issued at a discount of more than 10% of the face value.

(D) Redeemable debentures are those debentures which are payable on the expiry of the specific period.

Choose the correct answer from the options given below:

(B) and (D) only

The correct answer is option 4- (B) and (D) only.

(A) Debenture is a part of owned capital. THIS IS INCORRECT as debentures is a part of borrowed capital. A ‘share’ represents ownership of the company whereas a debenture is only acknowledgement of Debt. A share is a part of the owned capital whereas a debenture is a part of borrowed capital.

(B) The payment of interest on debentures is a charge on the profits of the company. THIS IS CORRECT. The payment of dividend is an appropriation of profits, whereas the payment of interest is a charge on profits and is to be paid even if there is no profit.

(C) The debentures cannot be issued at a discount of more than 10% of the face value.  THIS IS INCORRECT as there is no limit of discount.  When a debenture is issued at a price below its nominal value, it is said to be issued at a discount. For example, the issue of Rs. 100 debentures at Rs. 95, Rs. 5 being the amount of discount. The discount on issue of debentures can be written off either by debiting it to or out of Securities Premium Reserve, if any, during the life time of debentures. Discount on issue of debentures to be written off within 12 months of the balance sheet date or the period of operating cycle is shown under ‘Other Current Assets’ and the part which is to be written off after 12 months of balance sheet is shown under ‘Other Non-Current Assets’. The Companies Act, 2013 does not impose any restrictions upon the issue of debentures at a discount.

(D) Redeemable debentures are those debentures which are payable on the expiry of the specific period. THIS IS CORRECT. Redeemable debentures are those which are payable on the expiry of the specific period either in lump sum or in instalments during the life time of the company. Debentures can be redeemed either at par or at premium.