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JAMB Economics 2020 Question 27

Question 27

Business Organisations

Which of the followings is not true about debentures?

  1. A.preference shareholders receive their share of profits before debenture holders receive their entitlements
  2. B.debentures holders are creditors to the company and therefore do not share in the risk of the company
  3. C.debentures are fixed interest bearing security with specified maturity
  4. D.debenture holders are entitled to interest payments whether or not profits are made
Show the answer and explanation

Answer: A (preference shareholders receive their share of profits before debenture holders receive their entitlements)

Explanation

Debenture holders are creditors and must be paid interest before any shareholders, including preference shareholders, get dividends. So A is false.