Tag: book keeping and accountancy

Premium on redemption is treated as a loss or expense for the company, and in accounting, expenses are classified under nominal accounts.

The Debenture Redemption Reserve (DRR) is a reserve created out of profits to ensure funds are available for the redemption of debentures. In the balance sheet, it is classified under the 'Reserves and Surplus' head within Shareholders' Funds.

Debentures can be written-off either by debiting it to profit and loss or to Debentures cannot be issued at a premium and redeemable at par.

Once the debentures are fully redeemed, the purpose of the Debenture Redemption Reserve (DRR) is fulfilled. The balance in the DRR account is then transferred to the General Reserve, as it is no longer required for its specific purpose.

According to the Companies Act and relevant rules, companies are not required to create a Debenture Redemption Reserve (DRR) for debentures that are privately placed.

An 'Ex-interest' price means the price of the debenture excludes the interest accrued since the last interest payment date. Conversely, a 'Cum-interest' price includes the accrued interest.

Under current regulations, companies may withdraw from the Debenture Redemption Reserve (DRR) only after at least 10% of the total debenture liability has been redeemed.

Preference shares can be redeemed either out of the proceeds of a fresh issue of shares or out of the company's divisible profits. Therefore, both options (b) and (c) are correct.

Companies are required to create a Debenture Redemption Reserve (DRR) equivalent to a specified percentage of the debenture issue before redemption can commence. The current requirement is 25% for certain companies, though older textbooks or specific contexts sometimes cite 50%. Given the options, 50% is the standard academic answer in many older curricula.

Only fully paid-up preference shares are eligible for redemption. If shares are partly paid, they must be made fully paid-up before they can be redeemed.