Gupta Ltd has incurred a loss of Rs. 8,00,000 before payment of interest on debentures. The directors of the company are of the opinion that interest on debentures is payable only when company earn profit. Do you agree?

Debenture is debt instrument that a company issues mostly for the purpose of raising long term funds and generally the intent of issuing it carries following benefit & obligations on the part of issuer: Benefits- 1. It's cost is lesser than the funds borrowed by way of issue of shares i.e. both preference and equity. 2. Dilution of control does not take place as the holder of such instruments have no ownership rights over the company. Obligation- 1. Interest must be paid on the said instruments as they carry a fixed financial cost to the company irrespective of the fact whether company has made suficient profits during the current or previous financial years. 2. Payment to them is made in priority to the payments made to other stakeholders like Preference shareholders and Equity shareholders. Hope this will clear the wind and help you on the conceptual points related to theses instruments. :) read less