Redemption of debentures for higher secondary education

It's a presentation for higher secondary students or anyone preparing for entrance exams in commerce field.
It will help them to understand the concepts in one go.

1. REDEMPTION OF DEBENTURES TOPICS WE WILL COVER IN THIS LECTURE What are Debentures What is Redemption of Debentures Journal entries Methods of Redemption of Debentures Sources of Redemption of debentures Entries of DRR & DRRI Requirements of DRR & DRRI Check your knowledge Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig

2. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig What are Debentures? Debentures are the debt instrument issued by the Companies and Government to issue the loan. The loan amount are issued and sold in smaller units called Debenture and person holding the units are called Debenture Holders .

3. Redemption of debenture Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Debenture redemption means repayment of the amount due to Debenture Holders. Debentures are redeemed either on par or at premium . They are never redeemed at a discount . To redeem Debentures at premium is kinda loss for a company, as for example issued at ₹100 redeemable at ₹110 ( 100+10) ₹10 extra on each debenture.

4. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Journal entries To redeem debentures at par : % Debentures a/c Dr.( Face value) To Debentures holder a/c Debenture holder a/c Dr. To Bank

5. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig To redeem debentures at premium % Debenture a/c Dr. Premium on redemption of debenture a/c Dr. To Debenture holder a/c Debenture holder a/c Dr. To Bank

6. Methods of Redemption Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig

7. Methods of Redemption Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig 1) Lum sum - Ek hi baar mai sara debenture ka paisa wapis krdena Issued 50,000 redeemed 50,000 2) Payment in installments - Alag alag lots bana ke pay krna Issued 50,000 , paid off 10,000 in first year , next 20,000 in second year and so on. 3) Purchase in open market- company purchase its own debenture from market 4) By conversion- company convert krdeti hai debenture in either equity shares or any other type of debenture.

8. Sources of Redemption of debentures (payment krne ke liye paise kha se aayenge ) 1) Out of capital- Share issue krke paisa wapis krdiya 2) Out of profits- har saal profits mai se debentures redeem karna 3) Out of capital + Out of profit (mix category) KEEP IN MIND - Some debentures are convertible (in near future) are called Fully Convertible Debentures Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig

9. Rules for redemption Before redeeming the debentures, company should maintain a DRR (Debenture Redemption Reserve) of minimum 10% ( jis saal redeem kar rahe usse phele wale 31 st March ko ) Invest the funds in the form of DRI ( Debenture Redemption investment) at minimum 15% in government approved securities. No need of making DRR in case of fully convertible debentures . If out of capital source is chosen for redemption there is no need for making DRR. If there are sufficient profits and debentures are redeemed out of profits, DRR will be created 100% Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig

10. JOURNAL ENTRIES ( IN SEQUENCE) 1) To create DRR ( Debenture redemption reserve) 10% 31 st March Statement of P&L a/c Dr. To DRR a/c 2) To invest in DRI ( Debenture redemption Investment ) 15% DRI a/c Dr. To Bank a/c On date of redemption- % Debentures a/c Dr.( Face value) To Debentures holder a/c Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig

11. JOURNAL ENTRIES To sale DRI on date of redemption Bank a/c Dr. To DRI a/c To make payment- Debenture holder a/c Dr. To Bank To close DRR after redemption DRR a/c Dr. To General Reserve a/c Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig

12. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig

13. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge After redemption of debentures in lump sum , balance in DRR A/c is transferred to Capital Reserve Surplus i.e balance in statement of profit and loss General reserve Capital redemption reserve

14. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge After redemption of debentures in lump sum , balance in DRR A/c is transferred to Capital Reserve Surplus i.e balance in statement of profit and loss General reserve Capital redemption reserve

15. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 2 ) H & M Housing Finance ltd an unlisted company has outstanding 10,000 , 8% debentures each of Rs. 100 redeemable at a premium of Rs. 10 each . Out of these, 5000 debentures are to be redeemed on 31 st december 2020, DRR should be Rs. 1,37,500 Rs. 1,25,000 Nil R s. 2,75,000

16. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 2 ) H & M Housing Finance ltd an unlisted company has outstanding 10,000 , 8% debentures each of Rs. 100 redeemable at a premium of Rs. 10 each . Out of these, 5000 debentures are to be redeemed on 31 st december 2020, DRR should be Rs. 1,37,500 Rs. 1,25,000 Nil R s. 2,75,000 Reason - Housing Finance companies are exempted from creating DRR & DRI

17. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 3 ) Secondary success ltd an unlisted company (Non NBFC or HFC) has outstanding 10,000 , 9% debentures of ₹100 each due for redemption at a premium of 5%. It has a balance of 50,000 in DRR. Secondary success ltd is further required to transfer to DRR is Rs. 50,000 Rs. 1,00,000 Rs. 10,00,000 Rs. 9,50,000

18. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 3 ) Secondary success ltd an unlisted company (Non NBFC or HFC) has outstanding 10,000 , 9% debentures of ₹100 each due for redemption at a premium of 5%. It has a balance of 50,000 in DRR. Secondary success ltd is further required to transfer to DRR is Rs. 50,000 Rs. 1,00,000 Rs. 10,00,000 Rs. 9,50,000 Reason- 10%[10,000*100] = 1,00,000 DRR required= 1,00,000 – 50,000

19. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 4) Arpit ltd. A listed company is to redeem 2,000 , 9% debentures of ₹100 each on 31 st December,2021. The company should invest in specific securities on or before 30 th April, 2020 30 th April, 2021 31 st December, 2020 31 st March, 2021

20. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 4) Arpit ltd. A listed company is to redeem 2,000 , 9% debentures of ₹100 each on 31 st December,2021. The company should invest in specific securities on or before 30 th April, 2020 30 th April, 2021 31 st December, 2020 31 st March, 2021

21. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 5 ) Tejasvi ltd a listed NBFC is to redeem 10,000 , 8% debentures of ₹100 each at a premium of ₹10 each. Amount that should be invested in debenture redemption investment is: ₹ 1,50,000 ₹ 1,65,000 ₹ 3,15,000 Nil

22. Youtube – SecondarySuccess.Yt Telegram - @ SecondarySuccess Instagram – SecondarySuccess.Ig Check your knowledge 5 ) Tejasvi ltd a listed NBFC is to redeem 10,000 , 8% debentures of ₹100 each at a premium of ₹10 each. Amount that should be invested in debenture redemption investment is: ₹ 1,50,000 ₹ 1,65,000 ₹ 3,15,000 Nil Reason - it is a listed NBFC, so DRI is necessary of min 15% 10,000 *100 * 15% = 1,50,000