The following are the features of Debentures:

(A) The payment of interest is a charge on profits and is to be paid even if there is no profit.

(B) The debentures, which are issued for a specified period are repayable on the expiry of that period.

(C) If the debentures are generally secured, they carry a fixed or floating charge over the assets of the company.

(D) Debentures can not be converted into shares in any case.

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) The payment of interest is a charge on profits and is to be paid even if there is no profit - THIS IS TRUE. When a company issues debentures, it is under an obligation to pay interest thereon at fixed percentage (half yearly) periodically until debentures are repaid. This percentage is usually as part of the name of debentures like 8% debentures, 10% debentures, etc., and interest payable is calculated at the nominal value of debentures. Interest on debenture is a charge against the profit of the company and must be paid whether the company has earned any profit or not. According to Income Tax Act, 1961, a company must deduct income tax at a prescribed rate from the interest payable on debentures if it exceeds the prescribed limit. It is called Tax Deducted at Source (TDS) and is to be deposited with the tax authorities. Of course, the debentureholders can adjust this amount against the tax due from them

(B) The debentures, which are issued for a specified period are repayable on the expiry of that period - THIS IS TRUE. 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.

(C) If the debentures are generally secured, they carry a fixed or floating charge over the assets of the company - THIS IS TRUE. Secured debentures refer to those debentures where a charge is created on the assets of the company for the purpose of payment in case of default. The charge may be fixed or floating. A fixed charge is created on a specific asset whereas a floating charge is on the general assets of the company. The fixed charge is created against those assets which are held by a company for use in operations not meant for sale whereas floating charge involves all assets excluding those assigned to the secured creditors.

(D) Debentures can not be converted into shares in any case - THIS IS NOT TRUE. The company can offer debenture holders the option to convert their debentures into shares or a new class of debentures at a predetermined conversion ratio. Debenture holders may choose to convert their debentures into equity shares or other securities offered by the company.