[amp_mcq option1=”Out of accumulated profits” option2=”Out of accumulated losses” option3=”By purchase of own debentures from market” option4=”By conversion of debentures into shares” correct=”option1″]
The correct answer is: A. Out of accumulated profits.
A company can redeem its debentures by:
- Out of the proceeds of a fresh issue of debentures.
- Out of the proceeds of a fresh issue of shares.
- Out of the proceeds of a fresh issue of any other securities.
- Out of the proceeds of a sale of its assets.
- Out of the proceeds of a loan raised from a bank or other financial institution.
- Out of the proceeds of a conversion of debentures into shares.
A company cannot redeem its debentures out of accumulated profits because accumulated profits are part of the company’s equity. Redeeming debentures out of accumulated profits would reduce the company’s equity, which would be a violation of the company’s articles of association.
The other options are all possible ways for a company to redeem its debentures.