LOAN CAPITAL Lesson Note
Learning Objectives
This SS3 ACCOUNTING lesson note covers LOAN CAPITAL for First Term, Week 4.
Lesson Note
Learning Objectives
By the end of the lesson, students should be able to:
Describe the meaning of loan capital.
Classify debentures into various types.
Differentiate between shares and debentures.
A. MEANING OF LOAN CAPITAL
Loan capital is money borrowed by a business from individuals or financial institutions to finance its activities. The money is usually repaid with interest.
B. MEANING OF DEBENTURE
A debenture is a document that shows that a company has borrowed money and agrees to repay it with interest.
C. TYPES OF DEBENTURES
Secured debenture: A debenture backed by the company’s assets.
Unsecured debenture: A debenture not backed by specific company assets.
Redeemable debenture: A debenture that will be repaid after a specified period.
Irredeemable debenture: A debenture with no fixed repayment date under its terms.
Convertible debenture: A debenture that can be converted into shares.
Non-convertible debenture: A debenture that cannot be converted into shares.
D. DIFFERENCES BETWEEN SHARES AND DEBENTURES
Shares represent ownership of a company, while debentures represent a loan to a company.
Shareholders receive dividends, while debenture holders receive interest.
Dividends are not fixed, while debenture interest is usually fixed.
Shareholders are owners, while debenture holders are creditors.
Shareholders may have voting rights, while debenture holders generally do not.
Evaluation
OBJECTIVE QUESTIONS
Loan capital is money obtained through ______. A. Borrowing B. Selling goods C. Advertising D. Paying wages
A debenture represents ______. A. Ownership B. A loan C. Profit D. Stock of goods
The person who holds a debenture is called a ______. A. Shareholder B. Customer C. Debenture holder D. Manager
Which of the following is a type of debenture? A. Ordinary B. Convertible C. Preference D. Bonus
A debenture backed by company assets is called ______. A. Secured debenture B. Unsecured debenture C. Ordinary share D. Preference share
The return paid to debenture holders is called ______. A. Dividend B. Interest C. Salary D. Commission
A person who owns shares in a company is a ______. A. Creditor B. Debtor C. Shareholder D. Supplier
Which of these represents ownership of a company? A. Debenture B. Loan C. Shares D. Interest
A debenture that can be converted into shares is called ______. A. Secured debenture B. Convertible debenture C. Unsecured debenture D. Redeemable debenture
Shareholders receive returns known as ______. A. Interest B. Rent C. Dividends D. Wages
Theory Questions
1a. What is loan capital?
1b. Mention four types of debentures
2a. Define debenture.
2b. State two differences between shares and debentures.
2c..Who is a debenture holder?