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CS Executive · Corporate Accounting and Financial Management · Accounting for Debentures

Under the Companies Act, 2013 text provided, what is the position on the use of the amount standing to the credit of the debenture redemption reserve account created under section 71(4)?

The amount credited to the debenture redemption reserve account may not be utilised by the company except for the redemption of debentures, as section 71(4) provides. It cannot be used for dividends, writing off expenses or buy-back of shares.

  1. AIt may be used freely to pay dividends once debentures are issued
  2. BIt shall not be utilised by the company except for the redemption of debenturesCorrect
  3. CIt may be used to write off preliminary expenses
  4. DIt may be used to buy back equity shares

Explanation

Section 71(4) requires a debenture redemption reserve account to be created out of profits available for payment of dividend. The amount credited to it cannot be used except for redeeming debentures. Using it for dividends, preliminary expenses or buy-back is therefore not permitted.

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