Question

Why is it advisable for an unlisted manufacturing company to start transferring its profits to Debenture redemption reserve from the year of the issue of its non-convertible debentures?

Answer 1

It is advisable for an unlisted manufacturing company to start transferring its profits to DRR from the year of the issue of its non-convertible debentures due to the following reasons:

1. Financial Security: Ensures funds for debenture redemption.
2. Smoother Cash Flow: Avoids large, sudden payouts.
3. Legal Compliance: Many jurisdictions and laws require funds to be available at the time of debenture redemption.
4. Protection: It protects debenture holders and maintains the company’s creditworthiness.