Advertisements
Advertisements
Question
Long Answer Question
Explain the guidelines of SEBI for creating Debenture Redemption Reserve.
Advertisements
Solution
The following are the main points of SEBI’s guidelines for creation of Debenture Redemption Reserve (DRR).
1. Every company that issues debentures with a maturity of more than 18 months shall create DRR.
2. An amount equal to 50% of debenture issued shall be transferred to DRR before starting redemption of debentures.
3. Creation of DRR is applicable only for Non-Convertible Debentures and for non-convertible part of Partly Convertible Debentures.
4. Any withdrawal from DRR is allowed only after 10% of debentures are redeemed.
Thus, as per the SEBI’s guidelines, 50% of the debentures issued should be redeemed out of the profits that are transferred to DRR and the remaining 50% of the debentures issued can be redeemed either out of profits or out of capital. Hence, no company can redeem all the debentures issued purely out of the capital.
As per the SEBI’s guidelines the following companies are exempted from the creation of DRR.
1. Infrastructure companies (i.e. those companies that are engaged in the business of developing, maintaining and operating infrastructure facilities)
2. A Company that issues debentures with a maturity up to 18 months
APPEARS IN
RELATED QUESTIONS
Short Answer Question
What is meant by ‘Premium on Redemption of Debentures’?
What is meant by redemption of debentures?
Short Answer Question
What is meant by redemption of debentures by conversion?
Short Answer Question
Under which head is the ‘Debenture Redemption Reserve’ shown in the Balance Sheet?
Long Answer Question
Differentiate between redemption of debentures out of capital and out of profits.
Long Answer Question
Can a company purchase its own debentures in the open market? Explain
Long Answer Question
What is meant by conversion of debentures? Describe the method of such a conversion.
A company issued debentures of the face value of Rs 5,00,000 at a discount of 6% on April 01, 2012. These debentures are redeemable by annual drawings of Rs,1,00,000 made on March 31 each year. The directors decided to write off discount based on the debentures outstanding each year.
Calculate the amount of discount to be written-off each year. Give journal entries also.
A company issued 10% Debentures of the face value of Rs,1,20,000 at a discount of 6% on April 01, 2011. The debentures are payable by annual drawings of Rs 40,000 commencing from the end of third year.
How will you deal with discount on debentures?
Show the discount on debentures account in the company ledger for the period of duration of debentures. Assume accounts are closed on March 31 every year.
What journal entries will be made in the following cases when company redeems debentures at the expiry of period by serving the notice: (a) when debentures were issued at par with a condition to redeem them at premium; (b) when debentures were issued at premium with a condition to redeem that at par; and (c) when debentures were issued at discount with a condition to redeem them at premium?
On 1st April 2015, Mayfair Ltd. issued 4,000 9% debentures of ₹ 100 each at a discount of 5% redeemable at a premium of 8%. The debentures were redeemable on 31st March 2019. The company created the necessary minimum amount of debenture redemption reserve and purchased the required amount of debenture redemption investments as per the provisions of Companies Act, 2013.
Pass the necessary journal entries for the redemption of debentures.
Krishna Ltd. had outstanding 20,000, 9% debentures of ₹ 100 each on 1st April 2014. These debentures were redeemable at a premium of 10% in two equal installments starting from 31st March 2018. The company had a balance of ₹ 4,00,000 in Debenture Redemption Reserve on 31st March 2017. Pass necessary journal entries for the redemption of debentures in the books of Krishna Ltd. for the year ended 31st March 2018.
Convertible debentures cannot be issued at a discount if ______.
Which of the methods can be adopted to write off discount/loss on issue of debentures against the revenue profits?
Consider the following statements.
Statement 1 - "No DRR is required for debentures issued by All India Financial Institutions, regulated by RBI and Banking Companies for both public as well as privately placed debentures".
Statement 2 - DRR is required for debentures issued by All India Financial Institutions, regulated by RBI and Banking Companies for both public as well as privately placed debentures"
Which of the following is not true about Debenture Redemption Reserve (DRR)?
Premium on Redemption of Debentures Account is a ______.
Sources of finance for the redemption of debentures are ______.
