Debentures are convertible into which of the following?

Convertible Debentures

Debentures are convertible into Shares (equity shares of the company).

Explanation:

Convertible debentures are a special type of debenture that gives the debenture holder the right to convert them into equity shares of the company after a specified period, at a predetermined conversion ratio.

Conversion Process:

When debenture holders exercise their conversion option:

• Debenture account is debited (liability is reduced)
• Share capital account is credited (equity increases)
• Securities premium account may be credited (if applicable)

Why other options are incorrect:

• Debts: Debentures are already a form of debt. Converting debt into debt serves no purpose.
• Reserves: Reserves are internally generated funds from profits. Debentures cannot be converted into reserves as they represent external liabilities.
• Non-performing assets: These are assets (like loans) that have stopped generating income. Debentures are liabilities, not assets, and converting them into NPAs is not a valid financial concept.

Types based on convertibility:

• Fully Convertible Debentures (FCD): Entire debenture amount is converted into shares
• Partly Convertible Debentures (PCD): Only a portion is convertible; remaining is redeemed
• Non-Convertible Debentures (NCD): Cannot be converted into shares