answersLogoWhite

0


Best Answer

Most companies retire debentures by issuing another set of debentures, hence, most companies don't park funds for retiring debentures by creating any fund. The bond market will surely get affected negatively by such a move of the ministry of corporate affairs.

Section 117C of the Companies Act, 1956, requires every company issuing debentures to create a debenture redemption reserve (DRR) for the redemption of such debentures and transfer an 'adequate' amount from its profits every year to such DRR until the issued debentures are redeemed. Hence, every issue of redeemable debentures requires creation of a DRR. The said Section, however, does not provide the meaning of the word 'adequate'. In the year 2002, the ministry of corporate affairs (MCA) issued a circular clarifying the meaning of 'adequate' and provided the percentage which is mandatorily required to be transferred to DRR by certain class of companies. However, to develop the bonds market, MCA issued another clarification circular on 11 February 2013 (Circular 2013)

User Avatar

Wiki User

βˆ™ 11y ago
This answer is:
User Avatar

Add your answer:

Earn +20 pts
Q: When to create a Debenture Redemption Reserve?
Write your answer...
Submit
Still have questions?
magnify glass
imp
Related questions

After redemption of debenture debenture reduption reserve where to transfer whether in PL Ac or in General reserve.?

After redemption of debentures, debenture redemption reserve is to be transferred to general reserve.


Difference between Debenture Redemption Reserve and Capital redumption Reserve?

The Capital Redemption Reserve is a fund that secures a creditor. Debenture Redemption Reserve is for the purpose of security payments only.


What is Debenture Redemption Reserve?

Debenture is a debt instrument to raise funds. It has a maturity period associated with it. At the end of the maturity, the company(borrower) should return the interest and principal amount. Debenture Redemption Reserve is an amount kept as reserve for paying the debenture holder at the end of the maturity period.


Examine Debenture can be redeemed only out of capital?

No Debentures can not be redeemed out of capital only. Gov of India and SEBI has indirectly placed restrictions on redemption of debentures. Now it is compulsory to create Debenture Redemption Reserve at-least 50% of the debentures issued.


What are the reasons for the creation of debenture redemption reserve fund?

Indian Companies Act of 1956 added during an amendment in the year 2000. It states Indian company that issues debentures must offer debenture redemption service to protect investors against the possibility of company default. If a company does not create a reserve within 12 months of issuing the debentures, they will be required to pay 2 percent interest in penalty to the debenture holders. Only debentures that were issued after the amendment in 2000 are subject to the debenture redemption service.


Why debenture redemption reserve is transfer to general reserve?

When debentures are redeemed payment is made from a reserve which is created at the time of purchase of such debentures,therefore at the time of payment first it is transferred to general reserve then as it is expenditure to company.


Define redemption of debentures out of capital?

When debentures are redeemed out of capital, no transfer is made to general reserve or debenture redemption reserve account. In this method it is assumed that the company has sufficient funds to redeem the debentures. So the profits are not utilised to replace the debentures.It affects adversely to the Working Capital of the company.


What is the meaning and definition of redemption of debenture?

Redemption of Debenture was enacted into Indian law in 2000. It states that any Indian company with a debenture trust must also have a plan in place for its investors, in case of the company's failure.


Why premium on redemption of debenture credit at the time of issue of debenture?

It is capital loss of the company. It comes only in the time when redeem debenture. It is shown when we issue the debenture because it is one of the redeemable condition. it is loss of future but comes in balance sheet as separate account the name of premium redemption account in liability side so, it is carried at the time of issue.


What is redemption of debentures using purchase of own debenture?

A company can buy its own debenture in the open market, if it is authorised by its AOA. the debentures so purchased can be used either for immediate cancellation or redemption of debenture or for investment. the debenture so purchase for investment can be subsequently either be issued to fullfill additional requirements of cash or can be cancelled if the company so desires. debentures when purchases for investment are popularly known as 'OWN DEBENTURES.'


Why is capital redemption reserve created?

No


What do you mean by ex-interest in issue and redemption of debentures in company account?

Whan compay purchase debenture from the open market