NITIN GOEL
❏ CHARTERED ACCOUNTANT
❏ All India Rankholder
(CPT-9, Inter-7 , Final-9)
❏ Gold Medalist
❏ Educator: CA Inter Accounts
& Advanced Accounts
❏ 3 Years Experience with ITC Ltd.
8 years Teaching Experience
Use Code: CANITIN to get 10% Discount
REDEMPTION OF DEBENTURES
Meaning of Debenture:
A debenture is an instrument issued by a company under its seal, acknowledging a debt and containing
provisions as regards repayment of the principal and interest.
Legal Provisions:
➢ Under Section 71 (1) of the Companies Act, 2013, a company may issue debentures with an option to
convert such debentures into shares, either wholly or partly at the time of redemption.
➢ Section 71 (2) further provides that no company can issue any debentures which carry any voting
rights.
DEBENTURE REDEMPTION RESERVE
A company issuing debentures may be required to create a debenture redemption reserve account out of
the profits available for distribution of dividend and amounts credited to such account cannot be utilised
by the company except for redemption of debentures.
Such an arrangement would ensure that the company will have sufficient liquid funds for the redemption
of debentures at the time they fall due for payment.
In case of partly convertible debentures, DRR shall be created in respect of nonconvertible portion of
debenture issue.
ADEQUACY OF DEBENTURE REDEMPTION RESERVE (DRR)
As per Rule 18 (7) of the Companies (Share Capital and Debentures) Amendment Rules, 2019, the
company shall comply with the requirements with regard to Debenture Redemption Reserve (DRR) and
investment or deposit of sum in respect of debentures maturing during the year ending on the 31st day of
March of next year, in accordance with the conditions given below—
• the Debenture Redemption Reserve shall be created out of the profits of the company available for
payment of dividend;
• the limits with respect to adequacy of DRR and investment or deposits, as the case may be, shall be as
under:
S.No. Debentures Issued by Adequacy of DRR
1 All India Financial Institutions (AIFIs) regulated by Reserve No DRR is required
Bank of India and Banking Companies for both public as
well as privately placed debentures
2. Other Financial Institutions (FIs) within the meaning of DRR will be as applicable
clause (72) of section 2 of the Companies Act, 2013 to NBFCs registered with
RBI (as per (3) below)
3. For listed companies (other than AIFIs and Banking
Companies as specified in Sr. No. 1 above):
a. All listed NBFCs (registered with RBI under section 45-IA of No DRR is required
the RBI Act,) and listed HFCs (Housing Finance
Companies registered with National Housing Bank) for both
public as well as privately placed debentures
b. Other listed companies for both public as well as privately No DRR is required
placed debentures
4. For unlisted companies (other than AIFIs and Banking
Companies as specified in Sr. No. 1 above
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
a. All unlisted NBFCs (registered with RBI under section 45-IA No DRR is required
of the RBI (Amendment) Act, 1997) and unlisted HFCs
(Housing Finance Companies registered with National
Housing Bank) for privately placed debentures
b. Other unlisted companies DRR shall be 10% of the
value of the outstanding
debentures issued
INVESTMENT OF DEBENTURE REDEMPTION RESERVE (DRR) AMOUNT
Further, as per Rule 18 (7) of the Companies (Share Capital and Debentures) Amendment Rules, 2019,
following companies are required to make DRR Investment
➢ All listed NBFCs
➢ All listed HFCs
➢ All other listed companies (other than AIFIs, Banking Companies and Other FIs); and
➢ All unlisted companies which are not NBFCs and HFCs
shall on or before the 30th day of April in each year, in respect of debentures issued, deposit or invest, as
the case may be, a sum which should not be less than 15% of the amount of its debentures maturing
during the year ending on the 31st day of March of next year, in any one or more of the following
methods, namely:
(a) in deposits with any scheduled bank, free from charge or lien;
(b) in unencumbered securities of the Central Government or of any State Government;
(c) in unencumbered securities mentioned in clauses (a) to (d) and (ee) of Section 20 of the Indian
Trusts Act, 1882;
(d) in unencumbered bonds issued by any other company which is notified under clause (f) of Section
20 of the Indian Trusts Act, 1882.
The amount deposited or invested, as the case may be, above should not be utilised for any purpose other
than for the redemption of debentures maturing during the year referred to above.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
Question 1
The following balances appeared in the books of a company (unlisted company other than AIFI, Banking
company, NBFC and HFC) as on December 31st, 2021,
6% Mortgage 25,000 Debentures of ₹ 100 each. Debenture Redemption Reserve (for redemption of
debentures) ₹ 1,50,000.
DRR Investments ₹ 3,75,000 at 4% interest receivable on 31st December every year.
Bank Balance with the company ₹ 30,00,000.
The interest on debentures had been paid up to December 31st, 2021. On February 28th, 2022, the
investments were sold at par and the debentures were paid off at ₹ 101 together with accrued interest.
Write up the ledger accounts concerned.
Solution
6% Debentures Account
Date Particulars ₹ Date Particulars ₹
28.02.22 To Debenture holders A/c 25,00,000 01.01.22 By Balance b/d 25,00,000
25,00,000 25,00,000
Premium on Redemption of Debentures Account
Date Particulars ₹ Date Particulars ₹
28.02.22 To Debenture holders A/c 25,000 28.02.22 By P&L A/c 25,000
25,000 25,000
Debenture Redemption Reserve Investment A/c
Date Particulars ₹ Date Particulars ₹
01.01.22 To Balance b/d 3,75,000 28.02.22 By Bank A/c 3,75,000
3,75,000 3,75,000
Debenture Interest Account
Date Particulars ₹ Date Particulars ₹
28.02.22 To Bank A/c 25,000 28.02.22 By Profit & Loss A/c 25,000
(25,00,000*6%*2/12)
25,000 25,000
Debenture Redemption Reserve Account
Date Particulars ₹ Date Particulars ₹
01.01.22 By Balance b/d 1,50,000
28.02.22 To General Reserve A/c 2,50,000 01.01.22 By Profit and loss A/c 1,00,000
(25,00,000*10%)-1,50,000
2,50,000 2,50,000
Debenture holders A/c
Date Particulars ₹ Date Particulars ₹
28.02.22 To Bank A/c 25,25,000 28.02.22 By 6% Debentures 25,00,000
28.02.22 By Premium on 25,000
redemption of debentures
25,25,000 25,25,000
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No part of these notes may be reproduced in any manner without his prior permission in writing.
Bank A/c
Date Particulars ₹ Date Particulars ₹
01.01.22 To Balance b/d 30,00,000 28.02.22 By Debentureholders 25,25,000
A/c
28.02.22 To Interest on DRR 2,500 28.02.22 By Interest on 25,000
investment Debentures A/c
(3,75,000*4%*2/12)
28.02.22 To DRR investment 3,75,000 28.02.22 By Balance c/d 8,27,500
A/c
33,77,500 33,77,500
Question 2 Inter Nov 2019 (5 Marks)
A company had issued 40,000, 12% debentures of ₹100 each on 1st April, 2018. The debentures are due
for redemption on 1st March, 2022. The terms of issue of debentures provided that they were
redeemable at a premium of 5% and also conferred option to the debenture holders to convert 20% of
their holding into equity shares (nominal value ₹10) at a predetermined price of ₹15 per share and the
payment in cash. 50 debentures holders holding totally 5,000 debentures did not exercise the option.
Calculate the number of equity shares to be allotted to the debenture holders and the amount to be paid
in cash on redemption.
Solution
Calculation of number of equity shares to be allotted
Number of
debentures
Total number of debentures 40,000
Less: Debenture holders not opted for conversion (5,000)
Debenture holders opted for conversion 35,000
Option for conversion 20%
Number of debentures to be converted (20% of 35,000) 7,000
Redemption value of 7,000 debentures at a premium of 5% 7,35,000
[7,000 x (100+5)]
Equity shares of ₹10 each issued to debenture holders on 49,000 Shares
redemption [₹7,35,000/ ₹15]
Amount to be paid into cash [42,00,000 (40,000 x ₹105 ) –
7,35,000] on redemption 34,65,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
Question 3
Venus Limited (listed company) recently made a public issue in respect of which the following
information is available:
a) No. of partly convertible debentures issued 4,00,000; face value and issue price of ₹ 100 per debenture.
b) Convertible portion per debenture - 80%, date of conversion - on expiry of 7 months from the date of
closing of issue.
c) Date of closure of subscription list - 01.06.2021, date of allotment - 01.07.2021, Rate of interest on
debentures - 10% p.a. payable from the date of allotment. Value of equity share for the purpose of
conversion - ₹ 40 (Face value ₹ 10)
d) Underwriting commission - 3%
e) No. of debentures applied for 3,00,000
f) Interest payable on debentures - half yearly on 30th September and 31st March.
Write relevant journal entries for all transactions arising out of the above during the year ended on 31st
March, 2022 (including cash and bank entries).
Solution
In the books of Venus Ltd.
Journal entries
Date Particulars Debit (₹) Credit (₹)
01.06.21 Bank account Dr. 3,00,00,000
To Debenture Application A/c 3,00,00,000
(being application money received on
3,00,000 debenture @ ₹ 100 each)
01.07.21 Debenture application account Dr. 3,00,00,000
Underwriters Account Dr. 1,00,00,000
To 10% Debentures account 4,00,00,000
(being allotment of 3,00,000 debentures to
applicants and 1,00,00,000 debentures to
underwriters)
01.07.21 Underwriting Commission Dr. 12,00,000
To Underwriters account Dr. 12,00,000
(Being commission payable to underwriters on
4,00,000 debentures of ₹ 100 each @3%)
01.07.21 Bank account Dr. 88,00,000
To Underwriters account 88,00,000
(being amount received from underwriters on
settlement of account)
01.07.21 Debenture Redemption Investment A/c Dr. 12,00,000
To Bank account 12,00,000
(Being investments made for redemption
purpose 4,00,000*100*15%*20%)
30.09.21 Debentures Interest account Dr. 10,00,000
To Bank account 10,00,000
(being interest paid on debentures for 3
months from 01.07.2021 to 30.09.2021 on
₹4,00,00,000 @ 10% p.a)
31.12.21 10% Debenture account Dr. 3,20,00,000
To Equity share capital account 80,00,000
To Securities premium account 2,40,00,000
(being conversion of 80%of debentures into
share @₹40 per share with face value of ₹ 10
each)
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
31.03.22 Debenture interest account Dr. 12,00,000
To Bank account 12,00,000
(being interest paid on debentures for the half
year )
31.03.22 Profit and loss a/c Dr. 22,00,000
To Debenture interest a/c 22,00,000
(Being debenture interest for the year charged
to profit &loss a/c )
Working notes:
Calculation of Debenture Interest for the half year ended 31st March, 2022
₹
On ₹ 80,00,000 for 6 month @ 10%p.a. 4,00,000
On ₹ 3,20,00,000 for 3 month @10% p.a 8,00,000
Total 12,00,000
Question 4
The summarised Balance Sheet of ABC Limited (unlisted company other than AIFI, Banking company,
NBFC and HFC), as on 30th June, 2021, stood as follows:
Liabilities ₹
Share Capital: 8,00,000 equity shares of ₹ 10 each fully paid up 80,00,000
General Reserve 1,65,00,000
Debenture Redemption Reserve 15,00,000
12% Convertible Debentures : 1,50,000 Debentures of ₹ 100 each 1,50,00,000
Other Loans 70,00,000
Current Liabilities and Provisions 1,80,00,000
6,60,00,000
Assets:
Fixed Assets (at cost less depreciation) 2,50,00,000
Debenture Redemption Reserve Investments 22,50,000
Cash and bank Balances 1,17,50,000
Other Current Assets 2,70,00,000
6,60,00,000
The debentures are due for redemption on 30th June, 2021. The terms of issue of debentures provided
that they were redeemable at a 10% premium and also conferred option to the debenture holders to
convert 25% of their holding into equity shares at a predetermined price of ₹ 27.50 per share and the
balance payment in cash.
Assuming that:
(a) except for 80 debenture holders holding totally 50,000 debentures, the rest of them exercised the
option for maximum conversion.
(b) the investments realise at par on sale; and
(c) all the transactions are put through, without any lag, on 30th June, 2021.
Redraft the balance sheet of the company as on 30th June, 2021 after giving effect to the redemption.
Show your calculations in respect of the number of equity shares to be allotted and the cash payment
necessary.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
Solution
Balance Sheet as on 30th June 2021
Particulars Note Amount (₹)
No.
I. Equity and Liabilities
(1) Shareholder’s Fund
a) Share Capital 1 90,00,000
b) Reserves and Surplus 2 1,82,50,000
(2) Non-Current Liabilities
a) Long-term borrowings – Other Loans 70,00,000
(3) Current Liabilities
a) Short-term provisions 1,80,00,000
Total 5,22,50,000
II. Assets
(1) Non-current assets
a) Property, Plant & Equipment & Intangible Assets
(i) Property, Plant & Equipment 2,50,00,000
(2) Current assets
a) Cash and cash equivalents 2,50,000
b) Other current assets 2,70,00,000
Total 5,22,50,000
Notes to Accounts
1 Share Capital
9,00,000 equity shares of ₹10 each 90,00,000
2 Reserve and Surplus
General Reserve 1,65,00,000
Add: Debenture Redemption Reserve transfer 15,00,000
Less: Premium on redemption of debentures (15,00,000) 1,65,00,000
Securities Premium Account 17,50,000
1,82,50,000
Working Notes:
1 Calculation of number of shares to be allotted
Total number of debentures 1,50,000
Less: Number of debentures not opting for conversion (50,000)
1,00,000
25% of 1,00,000 25,000
Redemption value of 25,000 debentures @ 110 ₹ 27,50,000
Number of Equity shares to be allotted :
27,50,000
= = 1,00,000 share of ₹10 each.
27.50
2 Calculation of cash to be paid
Number of debentures 1,50,000
Less: Number of debentures to be converted into equity shares (25,000)
1,25,000
Redemption value of 1,25,000 debentures (1,25,000 x ₹110) ₹ 1,37,50,000
3 Cash and Bank Balance
Balance before redemption 1,17,50,000
Add: Proceeds of investments sold 22,50,000
1,40,00,000
Less: Cash paid to debenture holders (1,37,50,000)
2,50,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
Question 5
ZED Ltd. (unlisted company other than AIFI, Banking company, NBFC and HFC) had 25,000, 10%
Debentures of ₹ 100 each outstanding as on 1st April, 2021, redeemable on 31st March, 2022.
On that day, the following balances appeared in the books of accounts-
Investment in 3,000 8% secured Govt.Bonds of ₹ 100 each. DRR is ₹1,80,000.
Interest on investments is received yearly at the end of financial year.
4,000 own debentures purchased on 31st March 2022 at an average price of ₹ 99 and cancelled on the
same date.
On 31st March, 2022 the investments were realized at par and the debentures were redeemed.
You are required to write up the following accounts for the year ending 31st March 2022:
(1) 10% Debentures Account
(2) Debenture Redemption Reserve Account.
(3) Debenture Redemption Investments Account
Solution
10% Debentures Account
Date Particulars ₹ Date Particulars ₹
31.03.22 To Own debentures 3,96,000 1.04.21 By Balance b/d 25,00,000
31.03.22 To Profit on cancellation 4,000
31.03.22 To Bank 21,00,000
25,00,000 25,00,000
Debenture Redemption Reserve Investment A/c
Date Particulars ₹ Date Particulars ₹
01.04.21 To Balance b/d 3,00,000 31.03.22 By Bank A/c 60,000
(4,000*100*15%)
01.04.21 To Bank A/c 75,000 31.03.22 By Bank A/c 3,15,000
(25,00,000*15%)-3,00,000 (21,000*100*15%)
3,75,000 3,75,000
Debenture Redemption Reserve Account
Date Particulars ₹ Date Particulars ₹
01.04.21 By Balance b/d 1,80,000
31.03.22 To General Reserve A/c 2,50,000 01.04.21 By Profit and loss A/c 70,000
(25,00,000*10%)-1,80,000
2,50,000 2,50,000
Question 6 Inter Nov 2020 (10 Marks)
Sumit Ltd. (an unlisted company other than AIFI, Banking company, NBFC and HFC) had 8,000, 9%
debentures of ₹ 100 each outstanding as on 1st April, 2021, redeemable on 31st March, 2022.
On 1st April, 2021, the following balances appeared in the books of accounts:
• Investment in 1,000, 7% secured Govt. bonds of ₹ 100 each, ₹ 1,00,000.
• Debenture Redemption Reserve is ₹ 50,000.
Interest on investments is received yearly at the end of financial year. 1,000 own debentures were
purchased on 30th March, 2022 at an average price of ₹ 96.50 and cancelled on the same date.
On 31st March, 2022, the investments were realized at par and the debentures were redeemed.
You are required to write up the following accounts for the year ended 31st March, 2022.
(1) 9% Debentures Account.
(2) Debenture Redemption Reserve Account.
(3) DRR Investment Account.
(4) Own Debentures Account.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
Solution
9% Debentures Account
Date Particulars ₹ Date Particulars ₹
30.03.21 To Own debentures 96,500 1.04.21 By Balance b/d 8,00,000
30.03.21 To Profit on cancellation 3,500
31.03.22 To Bank 7,00,000
8,00,000 8,00,000
Debenture Redemption Reserve Investment A/c
Date Particulars ₹ Date Particulars ₹
01.04.21 To Balance b/d 1,00,000 30.03.22 By Bank A/c 15,000
(1,000*100*15%)
01.04.21 To Bank A/c 20,000 31.03.22 By Bank A/c 1,05,000
1,20,000 1,20,000
Debenture Redemption Reserve Account
Date Particulars ₹ Date Particulars ₹
01.04.21 By Balance b/d 50,000
31.03.22 To General Reserve A/c 80,000 01.04.21 By Profit and loss A/c 30,000
80,000 80,000
Own Debentures Account
Date Particulars ₹ Date Particulars ₹
30.03.22 To Bank A/c * 96,500 30.03.22 By 9% Debentures A/c 96,500
96,500 96,500
*interest not considered
Working Notes:
1. Debenture Redemption Reserve Investment A/c
The company would be required to invest an amount equivalent to 15% of the value of the debentures
in specified investments which would be equivalent to:
= Total No of debentures X Face value per debenture X 15% = 8,000 X 100 X 15% = ₹1,20,000/-
The company has already invested in specified investments i.e. 7% Govt bonds for an amount of
₹1,00,000 as per the information given in the question. The balance amount of ₹20,000 (i.e. ₹ 1,20,000
less ₹ 1,00,000) would be invested by the company on 1 April 2021.
2. Redemption of Debenture Redemption Reserve Investments on 30.3.2022 & 31.03.2022
Since the company purchased 1,000 own debentures on 30 March 2022, the company would also
realize the investments of 15% corresponding to these debentures for which computation is as follows:
= No of own debentures to be bought X Face value per debenture X 15%
= 1,000 X 100 X 15% = ₹ 15,000/-
The remaining debentures i.e. total debentures less own debentures would be redeemed on 31 March
2022 and hence the company would also realize the balance investments of 15% corresponding to
these debentures for which computation is as follows:
= (Total no of debentures - No of own debentures) X Face value per debenture X 15%
= (8,000 - 1,000) X 100 X 15% = ₹1,05,000/-
3. Debenture Redemption Reserve
The company would be required to transfer an amount equivalent to 10% of the value of the
debentures in Debentures Redemption Reserve Account. The value of debentures is 8,00,000 thus 10%
of it i.e. 80,000 should be there in DRR a/c. The available balance in DRR a/c is only 50,000
therefore 30,000 (80,000 – 50,000) additional amount will be transferred from General Reserve or
Profit and loss A/c to DRR A/c.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
Question 7 RTP May 2020 / RTP May 2021 (Similar)
The following balances appeared in the books of Lakshya Ltd. as on 1-4-2021:
a) 10 % Debentures ₹ 37,50,000
b) Balance of DRR ₹ 1,25,000
c) DRR Investment 5,62,500 represented by 10% ₹ 5,625 Secured Bonds of the Government of India of
₹ 100 each.
Annual contribution to the DRR was made on 31st March every year. On 31-3-2022, balance at bank
was ₹ 37,50,000 before receipt of interest. Interest on Debentures had already been paid. The investment
were realized at par for redemption of debentures at a premium of 10% on the above date.
Lakshya Ltd. is an unlisted company (other than AIFI, Banking company, NBFC and HFC). You are
required to prepare Debenture Redemption Reserve Account, Debenture Redemption Reserve
Investment Account and Bank Account in the books of Lakshya Ltd. for the year ended 31st March,
2022.
Solution
DRR Account
Date Particulars ₹ Date Particulars ₹
01.04.21 By Balance b/d 1,25,000
31.03.22 To General Reserve A/c 3,75,000 01.04.21 By Profit and loss A/c 2,50,000
(37,50,000*10%)-1,25,000
3,75,000 3,75,000
10% Secured Bonds of Govt. (DRR Investment) A/c
Date Particulars ₹ Date Particulars ₹
01.04.21 To Balance b/d 5,62,500 31.03.22 By Bank A/c 5,62,500
5,62,500 5,62,500
Bank A/c
Date Particulars ₹ Date Particulars ₹
31.03.22 To Balance b/d 37,50,000 31.03.22 By Debentureholders 41,25,000
A/c
(37,50,000*110%)
31.03.22 To Interest on DRR 56,250 31.03.22 By Balance c/d 2,43,750
investment
(5,62,500*10%)
31.03.22 To DRR investment 5,62,500
A/c
43,68,750 43,68,750
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
