Question

XYZ Ltd. has been operating in the field of FMCG products in South Indian market. However to expand its operation in northern part of India, it needs additional capital Rs 20,00,000 which is raised by issuing 10% Debenture of Rs 12,00,000 at a discount of 10% to be repayable after 6 years. The rest of the funds is raised by issuing 5% debenture of Rs 8,00,000 at 15% premium. These debentures are perpetual in nature. After six years of successful operation in northern India, company took a loan of Rs 5,00,000 from PNB against 5% debenture of Rs 8,00,000 of Rs 100 each as a collateral security. The company successfully ran its operation and managed to pay off its loan within two years. XYZ Ltd. issues 10% debentures of Rs 12,00,000 of Rs 100 each at a discount of 10% which will be repayable after 6 years. What type of debenture it is ?

• A. Zero Coupon Rate Bonds/Debenture
• B. Redeemable Debentures
• C. Convertible Debenture
• D. Irredeemable Debenture

Hint:

Understand each keyword, and identify what is related and what is not.

Answer 1

The Correct Option is B

Understanding the Characteristics of Debentures Types
Redeemable Debentures:
This type of debenture can be identified from the phrase "repayable after 6 years" as it clearly indicates that the debenture will be repaid at a future date. Redeemable debentures are those that will be redeemed by the company at a future date, which in this case is after 6 years. "It does not have features of other debt instruments such as being non-interest bearing (Zero coupon), converting into shares (Convertible), or having no repayment date (Irredeemable)." Thus, this makes the debenture a redeemable one.