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CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures

Kaveri Ltd has Rs 10,00,000 of 12% debentures due for redemption. As per the Companies (Share Capital and Debentures) Rules, it must invest or deposit a minimum percentage of the debentures maturing during the year ending 31 March in specified instruments by 30 April of that year. Debenture Redemption Reserve (DRR) is not required for this company, which is a listed company. Which statement is correct?

The company need not create DRR, but it must still deposit or invest at least 15% of the debentures maturing in the year, which is Rs 1,50,000, by 30 April. Exemption from DRR for listed companies does not remove the requirement to set aside investments.

  1. AThe company need not create DRR but must still maintain the required investment or deposit of at least 15% of the maturing amount, i.e. Rs 1,50,000Correct
  2. BThe company must create DRR of 25% and need not invest anything
  3. CThe company must invest 100% of the amount, Rs 10,00,000, by 30 April
  4. DThe company need not create DRR and need not make any investment or deposit

Explanation

Listed companies are exempt from creating DRR for both public and privately placed debentures, but the requirement to deposit or invest at least 15% of debentures maturing in the year by 30 April continues to apply. 15% of Rs 10,00,000 is Rs 1,50,000. The 25% DRR option applies to no listed company, and 100% is not required.

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