Login

When the payment through cash why 50% of profit transfer to Debenture Redemtion Reserve A/c ?

As per the guidelines laid down by the Securities and Exchange Board of India (SEBI) the creation of DRR is mandatory (DRR) for the listed companies issuing Non-Convertible Debentures with a maturity of above 18 months and for non-convertible part of Partly Convertible Debentures.

Thus, as per the SEBI’s guidelines, at least or equal to 50% of the debentures issued should be redeemed out of the profits that are transferred to DRR and the remaining 50% of the debentures issued can be redeemed either out of profits or out of capital. This is because it is not possible to redeem 100% debentures purely out of capital, as it reduces the value of assets.

The following are the companies that are exempted from the creation of DRR and thereby need not to transfer 50 % to DRR.

1. Infrastructure companies (i.e. those companies that are engaged in the business of developing, maintaining and operating infrastructure facilities)

2. A Company that issues debentures with a maturity up to 18 months.

  • 0
View Full Answer

According to a notification of Government of India issued by Controller of Capital Issue as on 1-1-1987, it is compulsory for all companies to create a Debenture Redemption Reserve up to at least 50% of the amount of debentures issued before the commencement of redemption of debentures. The effect of such a notification is that a Company cannot redeem its debentures purely out of capital or purely out of current profits.

  • 2

 if DRR is not created financial position is adversely affected

  • 0
What are you looking for?