100 MCQs on Debentures for Class 12

Front

What is a debenture?

Back

A long-term debt instrument issued by companies.

Answer explanation

A debenture is a long-term debt instrument issued by companies to raise capital. It represents a loan made by investors to the issuer, typically with a fixed interest rate, distinguishing it from shares and short-term loans.

Front

Debenture holders are considered as: Owners of the company, Creditors of the company, Partners of the company, Employees of the company

Back

Creditors of the company

Answer explanation

Debenture holders are creditors of the company because they lend money to the company in exchange for interest payments and the return of principal, rather than owning equity or having a partnership role.

Front

The rate of interest paid on debentures is:

Back

Fixed and predetermined

Answer explanation

The rate of interest on debentures is fixed and predetermined, meaning it does not fluctuate with company profits or decisions by shareholders, nor is it set by the Reserve Bank of India.

Front

Which of the following is NOT a characteristic of debentures? Fixed rate of interest, Redemption after specific period, Priority in repayment over equity

Back

Voting rights

Answer explanation

Debentures do not provide voting rights to holders, as they are a form of debt. They typically offer a fixed rate of interest, have a redemption period, and have priority in repayment over equity holders.

Front

Which of the following is TRUE regarding debenture interest? It is an appropriation of profit, It is a charge against profit, It is paid only when the company makes profit, It is based on the face value of equity shares

Back

It is a charge against profit

Answer explanation

Debenture interest is a charge against profit, meaning it is deducted from profits before calculating net income. Unlike dividends, it does not depend on profit availability and is based on the debenture's terms.

Front

Debentures that can be converted into equity shares are called:

Back

Convertible debentures

Answer explanation

Debentures that can be converted into equity shares are specifically known as convertible debentures. This distinguishes them from non-convertible, redeemable, and bearer debentures, which do not have this conversion feature.

Front

Debentures that cannot be converted into equity shares are called:

Back

Non-convertible debentures

Answer explanation

Debentures that cannot be converted into equity shares are specifically termed non-convertible debentures. This distinguishes them from convertible debentures, which can be converted into equity shares.

Front

Debentures that must be repaid after a specific period are known as:

Back

Redeemable debentures

Answer explanation

Redeemable debentures are those that must be repaid after a specific period, unlike irredeemable or perpetual debentures, which do not have a repayment date.

Front

Debentures where the holder's name is registered with the company are called:

Back

Registered debentures

Answer explanation

Registered debentures are those where the holder's name is recorded with the company, allowing for direct communication and payment of interest. This distinguishes them from bearer debentures, which are not registered.

Front

Debentures that are freely transferable without any formality are called:

Back

Bearer debentures

Answer explanation

Bearer debentures are transferable without any formalities, making them easy to buy and sell. In contrast, registered debentures require formal transfer procedures, which is why bearer debentures are the correct choice.