Chapter: 5
Accounting for Debenture
1. What do you understand by debenture?
Ans:-Debenture is a written promise for a debt by a company under its seal which contains the terms and conditions regarding the amount of loan, the rate of interest, maturity date, maturity value etc. In other words, a debenture is a certification of acknowledgment issued with the seal of company in favor of lender as an evidence of debt.
2. State any five features of debenture.
Ans:-Three features of debenture are given below:
a. Written promise:-Debenture is a written promise issued to the lender that states the payment of the value of loan in a specified period of time.
b. Face value:-A debenture has a fixed face value. It is generally Rs.1, 000.
c. Rate of interest:-The rate of interest is fixed and paid every year. So, debenture is also known as “fixed cost bearing capital.”
d. Long-term capital:-Generally, minimum maturity period of debenture is five years so it is taken as long term capital.
e. Maturity period:-Debenture is payable at a fixed period time.
3. Write in brief the meaning of convertible debentures.
Ans:-Convertible debenture are those debenture which are convertible into equity shares or other securities either at the option of debenture holders or at the option of the company. It may be fully convertible debentures or party convertible debentures.
4. Show any three differences between shares and debentures.
Ans:-The following are three differences between share and debenture:
| Shares | Debentures |
| a) The share of a company provides
ownership to the shareholders. |
a) The debenture holders provide loan. Thus,
debenture holders are creditors of a company. |
| b) Person holding shares is known as
shareholder. |
b) Person holding debentures is known as
debenture holders. |
| c) Shares can’t be converted into
debentures. |
c) Debentures can be converted into shares. |