Q.Interest on debentures is a charge against profit, while dividend is an appropriation of profit.

This statement is TRUE — it captures the single biggest accounting difference between the two payments.

Interest is a fixed contractual cost of borrowed money; dividend is a voluntary distribution of profit that already exists.

The statement is TRUE.

Interest as a charge against profit: debenture-holders are creditors of the company, and interest is the contractually fixed price the company pays for using their money. This interest is deducted from the company's revenue, as an expense, while the Statement of Profit and Loss is being prepared — it is paid whether the resulting figure is a profit or a loss, exactly like rent, salaries, or any other business expense.

Dividend as an appropriation of profit: shareholders are the owners of the company, not its creditors. Dividend can only be considered, and Section 123 only permits it to be paid, out of profit that has already been computed (after providing for depreciation) or out of free reserves. Dividend is therefore a decision about how to USE profit that already exists, not a cost incurred to earn that profit.

Why this distinction matters in practice: a company that is running at a loss must still pay its debenture interest and deposit interest on time (or be in breach of contract), but the same loss-making company simply cannot declare any dividend at all, because there is no profit (or adequate free reserve) for Section 123 to draw on.