Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Issue and Redemption of Debentures

Question:

What is the restriction on the use of the amount invested or deposited for debenture redemption?

Options:

It can be used for any purpose deemed necessary by the company

It can only be used for dividends to shareholders

It cannot be used for any purpose other than the redemption of debentures

It can be used for expansion and acquisitions

Correct Answer:

It cannot be used for any purpose other than the redemption of debentures

Explanation:

The restriction on the use of the amount invested or deposited for debenture redemption is that it cannot be utilized for any purpose other than the specific redemption of debentures. This regulation ensures that the funds set aside for debenture redemption are dedicated solely to meeting the company's obligation to repay the debentures when they mature. These funds cannot be diverted for other operational expenses, dividends, expansion, acquisitions, or any other purpose unrelated to debenture repayment. This restriction safeguards the interests of debenture holders by guaranteeing that the funds are available for their rightful redemption when due.