The following are the features of Debenture:

(A) Debentures can be converted into shares if the terms of issue are so provided, and in that case these are known as convertible debentures.

(B) Debentures are generally secured and carry a fixed or floating charge over the assets of the company.

(C) The rate of interest on debentures may vary from year to year depending upon the profits of the company.

(D) The debentures are issued for a specified period and repayable on the expiry of that period.

Choose the correct answer from the options given below:

Looking at each statement about debentures:

Statement (A): Debentures can be converted into shares if terms of issue permit → This is correct. These are called convertible debentures, which give holders the option to convert their debentures into equity shares at a predetermined rate.

Statement (B): Debentures are generally secured and carry a fixed or floating charge → This is correct. Most debentures are secured by a charge on company assets, providing security to debenture holders.

Statement (C): Interest rate on debentures varies with company profits → This is incorrect. Debentures carry a fixed rate of interest that remains constant regardless of profit or loss. Interest on debentures is a charge against profits (an expense), not an appropriation of profits. It must be paid even if the company incurs losses.

Statement (D): Debentures are issued for a specified period and repayable on expiry → This is correct. Debentures are typically issued with a fixed maturity period and are redeemed at the end of that term (though perpetual debentures exist, they are exceptions).

The key distinction here is understanding that debenture holders are creditors, not owners. They receive fixed interest irrespective of company performance, unlike shareholders whose dividends depend on profits.

Valid statements are (A), (B) and (D) only.

Correct Option: 2