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. issued another category of debenture which are perpetual in nature. What type of debentures they are called :

• A. Irredeemable Debentures
• B. Convertible Debenture
• C. Redeemable Debentures
• D. Bearer Debentures

Hint:

"A debt instrument is the base, and if that is missed, you would make a blunder."

Answer 1

The Correct Option is A

Understanding Debenture Types and their core characteristics:
Irredeemable Debentures:
Given the context and phrase "perpetual in nature," the debenture is perpetual, meaning it has no fixed maturity date and will not be redeemed unless the company decides to do so in the future. This is a characteristic of Irredeemable Debentures. These debentures do not contain features such as conversion to equity shares or redemption after a set time. Thus, option (1) fits perfectly as Irredeemable Debentures.