Class 12 Accountancy - ISC
Redemption of Debentures
The chapter 'Redemption of Debentures' in Class 12 ISC Accountancy deals with the repayment of the liability of debentures issued by a company. It is a crucial financial process that ensures long-term creditors are paid back as per the terms of issue. Students will learn various methods of redemption, including payment out of capital, payment out of profits, creation of a Debenture Redemption Reserve (DRR), and redemption through the purchase of own debentures in the open market. This topic carries significant weightage in board exams, frequently appearing as comprehensive 6-mark or 8-mark numerical problems.
Start Learning FreeKey Concepts
Debenture Redemption Reserve (DRR)
A statutory reserve created out of divisible profits before the redemption of debentures begins, ensuring the company has adequate liquidity to protect investors.
DRR Investment (DRI)
Mandatory investment of a specific percentage of the face value of debentures maturing during the year, deposited in specified securities to ensure cash availability.
Redemption out of Capital
Repayment of debentures made directly from existing capital resources without setting aside adequate profits, typically subject to strict regulatory compliance and DRR rules.
Redemption out of Profits
Repayment funded by accumulated business profits by transferring an equivalent amount to the Debenture Redemption Reserve over the life of the debentures.
Redemption by Purchase in Open Market
When a company buys back its own debentures from the stock market to cancel them immediately or hold them as investments, often resulting in a profit or loss on cancellation.
Important Formulas
Board Exam Info
In the ISC Class 12 Accountancy board exam, this chapter typically carries around 6 to 8 marks. Questions usually feature a full-length practical numerical problem requiring journal entries for the creation of DRR, DRI purchase, and final redemption of debentures, often combined with issue or open market purchase conditions.
Frequently Asked Questions
Is DRR mandatory for all types of companies?
No, All India Financial Institutions, banking companies, and certain NBFCs are exempt from creating a DRR for privately placed or publicly issued debentures.
What is the exact percentage required for DRR and DRI?
As per current MCA guidelines, the DRR requirement is 10% of the value of debentures, and the Debenture Redemption Investment (DRI) must be at least 15% of the face value of debentures maturing during the financial year.
What happens to the balance left in the DRR account after full redemption?
Once all debentures are fully redeemed, the remaining balance in the Debenture Redemption Reserve is transferred back to the General Reserve account.
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