What’s Redemption of Debentures?
Compensation of debentures to the debenture holders or discharge of the legal responsibility on account of debentures is called the redemption of debentures. They’re usually redeemed on the expiry of the interval for which they have been initially issued. The corporate may additionally redeem the debentures earlier than the expiry of the fastened interval both by instalments or by buying them within the open market if authorised by its articles of Affiliation and the phrases of subject.
Redemption of Debentures In Installments by Drawing Heaps:
Beneath this methodology, as a substitute of redeeming its debentures in a single lot(redemption in lump sum), an organization redeems the debentures in annual instalments. For this, the corporate selects the debentures for redemption on a random foundation after which redeems them accordingly. This course of is called the Redemption of Debentures in instalments by draw of tons. These debentures are redeemed both at par or at premium. Nonetheless, as per SEBI guidelines, the corporate has to switch the income to debenture redemption reserve equal to 25% of debentures issued.
Illustration 1:
Sukant Ltd. issued 12% Debentures of ₹1,80,000 payable in three annual instalments at par starting from 31st March 2020. Go the mandatory journal entries if debentures are to be redeemed out of revenue.
Answer:
Illustration 2:
On 1st April 2020, Sayeba Ltd. issued ₹1,00,000 15% Debentures of ₹100 every redeemable at a premium of 10% on the finish of two years starting from 31st March 2020. The corporate had in its Debenture Redemption Reserve Account a stability of ₹30,000. Go the mandatory journal entries each on the time of Problem and Redemption of Debentures with out offering for the Curiosity and loss on issued Debentures. Funding, as required by regulation, was made in a set deposit of the financial institution.
Answer:
Word: DRR needs to be created of the 100% nominal worth of the debentures to be redeemed as a result of there’s an current DRR of greater than 25% of the nominal worth of the debentures to be redeemed.