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Question
Explain the guidelines of SEBI for creating the Debenture Redemption Reserve.
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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
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Short Answer Question
Under which head is the ‘Debenture Redemption Reserve’ shown in the Balance Sheet?
Differentiate between redemption of debentures out of capital and out of profits.
X.Ltd. purchased a Machinery from Y. Ltd. at an agreed purchase consideration of Rs. 4,40,000 to be satisfied by the issue of 12% debentures of Rs. 100 each at a premium of Rs 10 per debenture. Journalise the transactions.
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.
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.
Profit on cancellation of own debentures is transferred to ______.
Which of the following column indicated in the statement given below is to be debited?
"Purchase of own debentures by the company for cancellation" ·
Which of the following methods are there for redemption of debentures?
Give the necessary journal entries at time of redemption of debentures
"X Ltd. issued 500, 9% debentures of Rs.100 each at par and redeemable at par at the end of 5 years out of capital."
No Debenture Redemption Reserve is required for debentures issued by ______.
Premium on Redemption of Debentures Account is a ______ Account.
Premium on Redemption of Debentures Account is a ______.
Premium on redemption of debentures is generally provided at the time of ______.
Sources of finance for the redemption of debentures are ______.
What is the nature of Premium on Redemption of Debenture Account?
