Read the following information and answer the question.
ABC Ltd. issued 20,000, 6% debentures of ₹100 each at a discount of 4% redeemable at a premium of 5% after 3 years from 1st April 2017. The amount payable on the application is ₹50 and the balance on the allotment. The company has a balance of ₹50,000 in securities premium reserve.
Which of the following is not true regarding ABC Ltd?
Answer & explanation
Correct answer: option 4
The correct answer is option 4- Issue for consideration other than cash.
Option 1: Redeemable debentures- This is true because the debentures are redeemable at a premium of 5% after 3 years. This means the company will pay back the debenture holders at ₹105 per debenture after 3 years.
Option 2: Issued at discount- This is true because the debentures are issued at a 4% discount. This means the company is issuing debentures worth ₹100 each, but at a 4% discount, i.e., they are issued at ₹96 each.
Option 3: Long term borrowing- This is true because the debentures are redeemable after 3 years, making it a long-term borrowing.
Option 4: Issue for consideration other than cash- This is not true because the debentures are being issued in exchange for cash, with payments being made on application and allotment.