Which statements are wrong about debentures?

(A) Debenture is a part of owned capital.

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

(C) Debentures cannot be converted into shares.

(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:

(A), (B) and (C) only

The correct answer is option 2- (A), (B) and (C) 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 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.

(C) Debentures cannot be converted into shares. THIS IS INCORRECT as convertible debentures can be converted into shares. Shares cannot be converted into debentures whereas debentures can be converted into shares if the terms of issue so provide, and in that case these are known as convertible debentures.

(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.