Joint Stock Company Accounts : Redemption of Debenture

General Reserve A/c

Step 1: Once debentures are redeemed, the purpose of the Debenture Redemption Reserve is fulfilled. Step 2: As per the latest rule, the proportionate DRR balance is transferred to General Reserve after redemption. Step 3: The journal entry is: Debenture Redemption Reserve A/c Dr. → To General Reserve A/c. Step 4: The transfer is proportionate – for example, if 25% of debentures are redeemed, 25% of DRR (i.e., 25% of the DRR created) is transferred. Step 5: Capital Reserve is for capital profits; Securities Premium Reserve is for premium on issue – neither is correct here.

₹2,00,000

Step 1: The law requires a minimum of 25% of the face value of debentures issued to be transferred to DRR. Step 2: Calculation: 25% × ₹8,00,000 = ₹2,00,000. Step 3: ₹1,20,000 is 15% of ₹8,00,000 – this is the DRI amount, not DRR. Step 4: ₹4,00,000 is 50% and ₹80,000 is 10% – neither is the prescribed DRR percentage. Step 5: Always apply 25% to the face value of debentures issued to find the DRR requirement.

A Banking Company regulated by RBI

Step 1: Rule 18(7) of Companies (Share Capital and Debentures) Rules 2014 lists exceptions to DRR creation. Step 2: All India Financial Institutions regulated by RBI and Banking Companies are NOT required to create DRR. Step 3: Additionally, NBFCs and other Financial Institutions (like LIC, UTI) are not required to create DRR for privately placed debentures. Step 4: Manufacturing companies and infrastructure companies issuing public debentures must create DRR as per normal rules. Step 5: Private limited companies issuing public debentures are also required to create DRR.

Capital Reserve A/c

Step 1: When a company buys its own debentures at a price lower than the face value (or lower than the redemption price), it makes a gain/profit. Step 2: This gain is called 'Gain on Cancellation of Debentures' and is a capital profit (not a revenue profit). Step 3: Capital profits are transferred to Capital Reserve A/c, not to Profit and Loss Statement. Step 4: The journal entry is: Gain on Cancellation of Debentures A/c Dr. → To Capital Reserve A/c. Step 5: Profit and Loss Statement is used for revenue profits; General Reserve is for distributable profits – neither applies to capital gains o