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The Loss or Profit on sale of own debentures will be transferred to Statement of profit and loss at the end of accounting year. A Ltd. wants to redeem 5,000, 5% Debentures of ₹100 each at 5% premium. This debenture redemption reserve is a capital reserve account. Note: It may be stated that the Debenture Redemption Reserve is sometimes non-cumulative. 9/2002 dated 18/04/2002. Balance in Statement of Profit and Loss Dr To Debenture Redemption Reserve A/c (b)On investment or deposit being made in specified securities Debenture Redemption Investment A/c Dr To Bank A/c Question 1. In case, redemption is purely out of profit, 100% of the nominal (face) value of outstanding redeemable debentures is transferred to DRR. Therefore, as and when the debenture redemption falls due, it becomes a case of a short term liability for the company and the AL Management in the company itself must be taking care of the impending redemption of the bonds and it may not be required to … ANSWER: As per the Company’s Act, in the case the companies must be authorized by the Article of Association to make the purchase of its own debentures in order for it to do so. A company shall create a Debenture Redemption Reserve (DRR) of an amount equivalent to 25% of amount of debentures before the redemption of debentures. Based on Security. 10,00,000 (Surplus amount is transferred to Debenture Redemption Reserve) April 30 To Debenture Redemption Reserve A/c . To protect debenture holders against the risk of the default of the issuing band, Section 117C of the Indian Companies Act of 1956 requires every debenture issuer to form a capital reserve, known as the debenture redemption reserve, which wishes be funded by the issuer’s profit and loss account. When all debentures are redeemed, balance in the Debenture Redemption Fund Account is transferred to: (a) Capital Reserve (b) General Reserve (c) Profit & Loss Appropriation A/c (d) None of these. Where is ‘Debenture Redemption Reserve’ transferred after the redemption of all debentures? Statement of Profit and Loss (See Note 1) Dr. 10,00,000 . The debenture-holders whose slips have been taken out are then repaid at par or premium, depending upon the terms of issue. SEBI’s function is to regulate the capital market and make it fair, transparent besides protecting the interest of the investors. 3.3.1 To Create Debenture Redemption Reserve . Most companies open reserve account(s) which enables in strengthening the future growth of the company. Condition of creating Debenture Redemption Reserve to the extent of 50% of total amount of debentures is to be complied before the redemption commences under this method. 5 Debenture Redemption ReserveDebenture Redemption Reserve For Redemption best source is out of profits. Here the debenture holders have the right to recover the principal amount in case the company fails or defaults in repaying the amount. Answer: B Answer. However, in case of convertible issues by new companies, the creation of Debenture Redemption Reserve shall commence from the year company earns profits for the remaining life of debentures. So as per the provisions of the Companies Act and the SEBI guidelines the company has to make provisions for such a debenture. The entries are made on the basis of the actual number of debenture applied. (e) the amount credited to the Debenture Redemption Reserve shall not be utilised by the company except for the purpose of redemption of debentures. Sir, The requirements with regard to “adequacy” of debenture redemption reserve (DRR) have been clarified by this Ministry vide General Circular No. (d) in case of partly convertible debentures, Debenture Redemption Reserve shall be created in respect of non-convertible portion of debenture issue in accordance with this sub-rule. § In case of partly convertible debentures, Debenture Redemption Reserve shall be created in respect of non-convertible portion of debenture issue in accordance with this sub-rule. Profit on sale of own Debentures A/c Dr. When any business who already has issued the debentures in the market, will create the reserve for the purpose of the redemption of debentures, out of profit which is available for the dividend, is known as Debenture Redemption Reserve. Answer. The journal entries passed in this case are: (a)On creation of debenture redemption reserve Surplus i.e. Instead the Debenture holders are compensated with a higher rate of interest. Subject: Debenture Redemption Reserve (DRR)- Clarification. 6. What is Debenture Redemption Reserve? To Debenture Redemption Reserve A/c . debenture redemption reserve The Gazetted Rules exempt certain companies from creation of the DRR and in case of other companies, reduce the percentage of DRR from 50 per cent to 25 per cent of the value of debentures. (A) Capital Reserve Account (B) General Reserve Account (C) Statement of Profit and Loss (D) Sinking Fund Account. Answer. A/c (Being issue of Debenture at discount and repayable at premium). March 31. In this case company incurs loss both at the time of issue and at the time of redemption. 4. The reserve fund is created by allocating a portion from the profits earned each year. Answer: (a) Capital Reserve It should be noted that dividend can be paid by a company from General Reserve, Dividend Equalisation Reserve and Surplus, i.e., Balance in Statement of Profit and Loss. The Securities and Exchange Board of India. This body was exercising and controlling on this point. A company issuing debentures with a maturity period of not more than 18 months, in that case the creation of Debentures Redemption Reserve will be : 50% of the amount of debentures issued 25% of the amount of debentures issued The company shall create a Debenture Redemption Reserve for the purpose of redemption of debentures, in accordance with the conditions given below –. In the last year or at the time of redemption of debentures, Debenture Redemption Reserve Investments are encashed and the amount so obtained is used for the redemption of debentures. It has told the company that you have to redeem the debentures only out of profits. Creating a sinking fund or debenture redemption reserve account; ... Discount on issue of debentures is a capital loss. Companies would now be required to create … Exceptions to the Creation of Debenture Redemption Reserve: In following cases companies have been exempted from creation of Debenture Redemption Reserve: 1. The entries are as follows: Bank A/c – Dr. Discount on Issue of Debenture A/c – Dr. Loss on issue of Debenture A/c To Debenture A/c To premium on Redemption of deb. How much amount it must transfer to Debenture Redemption Reserve, if it has already a balance of ₹1,00,000 in Debenture Redemption Reserve Account? Question 19: What is meant by redemption of debentures by ‘Purchase in the Open Market’? So they make provisions to pay the debenture holders. The idea is to strengthen the core of the company so that they can serve their customers and shareholders better. Issue and Redemption of Debentures Class 12 MCQs Questions with Answers. The Corporate Affairs Ministry has removed the requirement for Debenture Redemption Reserve (DRR) of 25% of the value of outstanding debentures issued by listed companies, Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs).. Unsecured The Reserve Bank of India. In that case, interest received on Debenture Redemption Reserve investments will not be credited to Debenture Redemption Reserve nor it will be invested; the amount of the interest will be credited to the profit and loss … redemption to the Debenture Redemption Reserve. In this case, all the debenture applications received are either acceptable fully or rejected fully. 2. According to section 74(4) of the Company’s Act, 2013 and Rule 18(7) of the Companies (Share Capital and Debentures) Rules, 2014, a Company is required to transfer an amount equal to at least 25% of the value of debentures to the Debenture Redemption Reserve a/c before redemption of debentures. Secured ; Secured Debentures are secured by creating the charge on assets or property of the company. And hence the company sets up a special account known as the Debenture Redemption Reserve. 10,00,000 (Surplus amount is transferred to Debenture Redemption Reserve) 2018 . In the case of unlisted companies, the DRR requirement has been reduced to 10% from 25% of the outstanding debentures. Currently in the case of convertible securities offered ... a company is required to create a Debenture Redemption Reserve (DRR) for the purpose of redemption of debentures as per conditions prescribed in the Rules. After the initial public offering (IPO), Apple kept all its profits as revenue reserve for few years. Answer: B (A) ₹4,00,000 (B) ₹1,50,000 (C) ₹2,00,000 (D) ₹2,50,000. Under the companies law, these entities raising money had to create Debenture Redemption Reserve (DRR) and that requirement has now been done away with. “As an example, we can talk about Apple. 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