And hence the company sets up a special account known as the Debenture Redemption Reserve. 9/2002 dated 18/04/2002. Statement of Profit and Loss (See Note 1) Dr. 10,00,000 . 5 Debenture Redemption ReserveDebenture Redemption Reserve For Redemption best source is out of profits. Unsecured The entries are made on the basis of the actual number of debenture applied. 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 Note: It may be stated that the Debenture Redemption Reserve is sometimes non-cumulative. Answer. This debenture redemption reserve is a capital reserve account. Based on Security. Most companies open reserve account(s) which enables in strengthening the future growth of the company. A company shall create a Debenture Redemption Reserve (DRR) of an amount equivalent to 25% of amount of debentures before the redemption of debentures. SEBI’s function is to regulate the capital market and make it fair, transparent besides protecting the interest of the investors. In the case of unlisted companies, the DRR requirement has been reduced to 10% from 25% of the outstanding debentures. There is an Institution called Securities Exchange Board of India. 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. So as per the provisions of the Companies Act and the SEBI guidelines the company has to make provisions for such a debenture. Subject: Debenture Redemption Reserve (DRR)- Clarification. Loss or Profit on sale of own debentures will be transferred to Statement of profit and loss at the end of accounting year. It has told the company that you have to redeem the debentures only out of profits. Question 19: What is meant by redemption of debentures by ‘Purchase in the Open Market’? 3.3.1 To Create Debenture Redemption Reserve . In this case, all the debenture applications received are either acceptable fully or rejected fully. The debenture-holders whose slips have been taken out are then repaid at par or premium, depending upon the terms of issue. The The Reserve Bank of India. So they make provisions to pay the debenture holders. This body was exercising and controlling on this point. To Debenture Redemption Reserve A/c . Answer: (a) Capital Reserve Answer. 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. (A) ₹4,00,000 (B) ₹1,50,000 (C) ₹2,00,000 (D) ₹2,50,000. The journal entries passed in this case are: (a)On creation of debenture redemption reserve Surplus i.e. What is Debenture Redemption Reserve? 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 … 4. In case, redemption is purely out of profit, 100% of the nominal (face) value of outstanding redeemable debentures is transferred to DRR. Answer: B The reserve fund is created by allocating a portion from the profits earned each year. Note : *There will be one entries from two above Profit or Loss as the case. Companies would now be required to create … (a) the Debenture Redemption Reserve shall be created out of the profits of the company available for payment of dividend; (b) the company shall create Debenture Redemption Reserve (DRR) in accordance with following … Instead the Debenture holders are compensated with a higher rate of interest. “As an example, we can talk about Apple. § 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. 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. 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. 2. The Securities and Exchange Board of India. 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. 10,00,000 (Surplus amount is transferred to Debenture Redemption Reserve) 2018 . 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. 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. 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