Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Issue and Redemption of Debentures

Question:

What distinguishes convertible debentures from non-convertible debentures?

Options:

Convertible debentures are always fully convertible, while non-convertible debentures are only partly convertible

Convertible debentures are not issued by companies, while non-convertible debentures are

Convertible debentures can be converted into shares, while non-convertible debentures cannot

Convertible debentures offer higher interest rates than non-convertible debentures

Correct Answer:

Convertible debentures can be converted into shares, while non-convertible debentures cannot

Explanation:

The primary distinguishing feature between convertible debentures and non-convertible debentures is their convertibility:
Convertible Debentures: These debentures can be converted into equity shares or other securities, either at the option of the company or the debenture holders. They provide the flexibility for investors to convert their debentures into ownership shares in the company, typically at predetermined terms.
Non-Convertible Debentures: Non-convertible debentures cannot be converted into shares or any other securities. They remain as debt instruments throughout their tenure and do not offer the option for conversion into ownership equity.