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mediumMCQCUET Accountancy 2023 20 June Shift 22026Accountancy
1 mark

Which of the following combinations for the issue and redemption of debentures is not practically possible or permissible in general accounting?

  1. A
    Issued at a premium, Redeemed at a premium
  2. B
    Issued at a discount, Redeemed at a discount
  3. C
    Issued at par, Redeemed at a premium
  4. D
    Issued at a discount, Redeemed at par

Solution & Step-by-step Explanation

Let's look at the financial logic behind debenture terms:\begin{itemize}\item Companies can issue debentures at par, premium, or discount depending on market conditions, and they can redeem them at a premium as an extra incentive for investors.\item However, \textbf{Redemption at a discount} implies that the company will pay back less than the nominal face value at maturity. This is practically impossible because investors would not accept a contract that guarantees a loss at redemption.\end{itemize}

Practice this question

Try it yourself before checking the explanation above.

Which of the following combinations for the issue and redemption of debentures is not practically possible or permissible in general accounting?
A
Issued at a premium, Redeemed at a premium
B
Issued at a discount, Redeemed at a discount
C
Issued at par, Redeemed at a premium
D
Issued at a discount, Redeemed at par

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