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C H A P T E R

Company Accounts—

Redemption of Debentures

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Redemption of Debentures Redemption of Debentures means repayment of the amount
of debentures.
2. Debentures Redemption Reserve It is a reserve set aside out of profits available for distribution
(DRR) as dividend for the purpose of redemption of debentures.
It is created for Non-convertible Debentures (NCD) and
Non-convertible part of Partly Convertible Debentures
(PCD).
3. Debentures Redemption Investment It is an investment made by a company on or before
(DRI) 30th April of the current year of an amount that is at least
equal to 15% of the nominal value of debentures to be
redeemed by 31st March of next year.
4. Redemption of Debentures When profits are not transferred from Surplus, i.e., Balance
out of Capital in Statement of Profit and Loss to Debentures Redemption
Reserve (DRR) before the redemption of debentures, such
redemption is Redemption of Debentures out of capital.
5. Redemption of Debentures When adequate profits are transferred from Surplus, i.e.,
out of Profits Balance in Statement of Profit and Loss to Debentures
Redemption Reserve (DRR) before redemption of
debentures, such redemption is Redemption of Debentures
out of profits.
6. Redemption of Debentures It means all the debentures are redeemed at the date
in Lump Sum specified for redemption of debentures.
7. Redemption in Instalment by It means redemption of debentures (selected by draw or
Draw of Lots lottery) at the specified date.

CHAPTER SUMMARY

• Redemption of Debentures is a process of repayment of loan taken by issue of debentures.
• Methods of Redemption of Debentures: 1. On maturity in lump sum, 2. In instalments by draw of lots,
3. By purchase of Own Debentures from Open Market and 4. By Conversion of Debentures into Shares or New
Class of Debentures.
• Please note that Redemption by Purchase from Open Market and Conversion of Debentures are not in syllabus.
Hence, they have not been discussed.