Based on following, answer question.
XYZ Ltd. has been operating in the field of FMCG products in South Indian market. However to expand its operation in northen part of India, it needs additional capital ₹20,00,000 which is raised by issuing 10% Debenture of ₹12,00,000 of ₹100 issued at a discount of 10% to be repayable after 6 years. The rest of the funds is raised by issuing 5% debenture of ₹8,00,000 of ₹100 issued at 15% premium. These debentures are perpetual in nature. After six years of successful operation in northern India, company took a loan of ₹5,00,000 from PNB against 5% debenture of ₹8,00,000 of ₹100 each as a collateral security. The company successfully ran its operation and managed to pay off its loan within two years.
XYZ Ltd. issues 10% debentures of ₹12,00,000 of ₹100 each at a discount of 10% which will be repayable after 6 years. What type of debenture it is?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Redeemable Debentures
The 10% debentures are to be repaid after 6 years. Debentures payable on the expiry of a specific period, in a lump sum or in instalments, are redeemable debentures. Being issued at a discount does not change their type.
Why the other options are incorrect
Option (1) Zero Coupon Rate Bonds/Debenture — Incorrect. These carry no rate of interest, but these debentures carry 10% interest.
Option (3) Convertible Debenture — Incorrect. Nothing is said about converting them into shares.
Option (4) Irredeemable Debenture — Incorrect. Irredeemable debentures have no fixed date of repayment, while these are repayable after 6 years.
NCERT (2026-27 edition): |