Page 52 - DEBK12

10.2 Double Entry Book Keeping—CBSE XII

• Sources of Redemption of Debentures: Debentures can be redeemed by utilising any of the following sources:
(i) Redemption Out of Capital: When debentures are redeemed without adequate profits being transferred
from Surplus, i.e., Statement of Profit and Loss to Debentures Redemption Reserve (DRR), at the time of
redemption of debenture, such redemption is said to be out of capital.
(ii) Redemption Out of Profits: When debentures are redeemed only out of profits and amount equal to
nominal (face) value of Debentures is transferred from Surplus, i.e., Statement of Profit and Loss to
Debentures Redemption Reserve (DRR) before the redemption of debentures, such redemption is said
to be out of profits.
(iii) Redemption Partly out of Profits and Partly out of Capital: It means that the company does not transfer
100 per cent nominal (face) value of total redeemable debentures of a particular series to DRR from Surplus,
i.e., Balance in Statement of Profit and Loss.
Adequacy of Debentures Redemption Reserve (DRR)
Rule 18(7)(b) of the Companies (Share Capital and Debentures) Rules, 2014 (as amended w.e.f. 16th August, 2019)
prescribes as follows:
(a) Amount shall be transferred to Debentures Redemption Reserve out of profits of the company that are
available for payment of dividend; and
(b) Amount that shall be transferred to Debentures Redemption Reserve (DRR) shall be as follows:
S. No. Debentures Issued by Amount Adequate for DRR
1. All India Financial Institutions (AIFIs) regulated by Reserve DRR is not required.
Bank of India (RBI)
2. Banking Companies DRR is not required.
(For both Public Issue and Private Placement of Debentures)
3. Other Financial Institutions (FIs) within the meaning of DRR shall be as prescribed for NBFCs
Section 2(72) of the Companies Act, 2013 registered with RBI.
At present such companies are not
required to transfer amount to DRR.
4. Listed Companies (Other than AIFIs and Banking
Companies)
(For both Public Issue and Private Placement of Debentures)
(a) Non–Banking Financing Companies (NBFCs), registered with DRR is not required.
RBI under Section 45–IA of the RBI Act, 1934;
(b) Housing Finance Companies (HFCs) registered with National DRR is not required.
Housing Bank;
(c) Other Listed Companies. DRR is not required.
5. Unlisted Companies (Other than AIFIs and Banking
Companies)
(For Privately Placed Debentures)
(a) NBFCs, registered with RBI under Section 45–IA of the DRR is not required.
RBI Act, 1934;
(b) Housing Finance Companies (HFCs) registered with National DRR is not required.
Housing Bank.
6. Other Unlisted Companies (Other than NBFCs and HFCs) DRR shall be 10% of the value of the
Outstanding Debentures.
In the case of Convertible Debentures,
amount shall be set aside to DRR for
non-convertible part of the Convertible
Debentures.