Skip to content

CS Executive · Corporate Accounting and Financial Management · Accounting for Debentures

Which statement best describes a debenture issued by a company?

A debenture is a debt instrument acknowledging a loan to the company, normally earning fixed interest. The holder is a creditor, not an owner, so debenture holders have no ownership stake and no voting rights at general meetings, unlike equity shareholders.

  1. AAn instrument acknowledging a debt of the company, usually carrying a fixed rate of interest, and not giving the holder ownership rights in the companyCorrect
  2. BA share in the ownership of the company that carries voting rights at general meetings
  3. CA deposit of money by directors that is repayable only on winding up
  4. DA grant of equity that is repaid only out of distributable profits

Explanation

A debenture is a debt instrument. The holder is a creditor and receives interest, usually at a fixed rate, whether or not the company earns profit. The holder is not an owner, so the option describing ownership and voting rights describes an equity share instead.

Did you get it right without looking?

One question tells you little. A timed set on Accounting for Debentures shows your real accuracy, how long you take and where you lose marks.

Practise Accounting for DebenturesFree diagnostic mock

More Accounting for Debentures questions