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Debentures and their Redemption Questions and Answers

1.

In case of ....................... debentures, the investors are given the option to convert their investment in the form of equity shares of the company.

Exam Year(s)

MH SET - 2019, SET Exam - 2019,

Answer: D

The debentures are optionally convertible.

Optionally convertible debentures give the holder the choice of converting them into equity shares on the stated terms; if the option is not exercised, they are redeemed as ordinary debentures.

Fully and partly convertible debentures are converted, wholly or in part, compulsorily on the terms of issue, so there is no option. Non-convertible debentures cannot be converted at all.

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2.

Given below are two statements, one labelled as Assertion (A) and the other labelled as Reason (R) :

Assertion (A) : Sinking fund is a charge against Profit and Loss Account.
Reason (R) : Sinking fund is created for repayment of a long term liability.

In the context of the above two statements, which one of the following is correct ?

Exam Year(s)

UGC NET - 2012,

Answer: C

The assertion is wrong and the reason is correct. A sinking fund is created for the repayment of a long term liability, or the replacement of an asset, by setting aside a sum from profit each year. That sum is an appropriation of profit and is not a charge against it, so it is shown below the profit and loss account line and not as an expense. So option C, assertion wrong and reason correct, is right. Option A calls the reason wrong, option B accepts the assertion, and option D calls the reason wrong.

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