Practicing Success

Target Exam

CUET

Subject

Accountancy

Chapter

Issue and Redemption of Debentures

Question:

What distinguishes redeemable debentures from irredeemable debentures?

Options:

Redeemable debentures are always repaid in lump sum, while irredeemable debentures are repaid in installments

Redeemable debentures are never repaid, while irredeemable debentures are always repaid in full

Redeemable debentures are repaid at the end of a specific period, while irredeemable debentures have no repayment period

Redeemable debentures are always repaid at a premium, while irredeemable debentures are repaid at par value

Correct Answer:

Redeemable debentures are repaid at the end of a specific period, while irredeemable debentures have no repayment period

Explanation:

The primary distinguishing feature between redeemable debentures and irredeemable debentures is their repayment structure:
Redeemable Debentures: These debentures are repayable at the end of a specific period, either in a lump sum or in installments, during the lifetime of the company. The company commits to repaying the principal amount to debentureholders on or after a predetermined date.
Irredeemable Debentures: Irredeemable debentures, also known as perpetual debentures, do not have a specific repayment period mentioned. The company does not provide any undertaking for the repayment of the money borrowed through these debentures. Instead, they are typically repayable on the winding-up of the company or on the expiry of an extremely long period, often making them akin to perpetual debt.