When a company purchases assets from vendors and, instead of making payment in cash, issues debentures for payment, this type of issuance of debentures is known as ?
Answer & explanation
Correct answer: option 1
Correct answer: Option (1) → Debentures issued for consideration other than cash
Concept: When a company buys assets and settles the purchase consideration by issuing debentures instead of paying cash, it is called issue of debentures for consideration other than cash – per Issue and Redemption of Debentures.
Here the vendor is paid through debentures rather than money, so no cash flows out; this is the standard case of ‘debentures issued for consideration other than cash’. It differs from debentures issued as collateral security (given only as additional security for a loan), so option 1 is correct.